Is the Woodside share price a buy for dividends right now?

It's making strong profits right now, but is it a good time to buy Woodside for income.

Key points
  • Higher resource prices are boosting Woodside’s profitability significantly
  • One expert thinks there’s going to be a supply deficit with natural gas, so the ASX share can benefiting into the future
  • But, I think it’d be better to wait for a lower share price

The Woodside Energy Group Ltd (ASX: WDS) share price has been rising. It's up more than 16% in a month and tracking 57.7% higher since the start of the year.

As one of the world's largest oil and gas businesses, Woodside is benefiting from the higher prices for those resources. Today, shares in Woodside are trading a healthy 2.48% higher at $35.77.

With the company generating such good net profit after tax (NPAT) and cash flow right now, could this be a good time to consider Woodside for dividend income?

Well, first let's look at what the company is expected to pay to shareholders.

An oil worker assesses productivity at an oil rig.

Image source: Getty Images

Woodside dividend

The company's financial year is the same as the calendar year, unlike our typical financial year which starts in July.

According to estimates on CMC Markets, Woodside is expected to pay an annual dividend of $4.03 per share in FY22. That dividend expectation is based on the projection that the company could generate $5.67 of earnings per share (EPS).

At the current Woodside share price, this means that the FY22 grossed-up dividend yield is expected to be 16.1%.

FY23 isn't expected to be as positive as FY22, with EPS expectations of $5.07 in FY23 and an annual dividend of $3.89 per share.

That means that, in the 2023 financial year, Woodside might pay a grossed-up dividend yield of 15.5% if resource prices stay high.

Things to consider

Investing in resources is sometimes tricky. Shareholders want the commodity price to go up so the business can make more profit and pay bigger dividends.

However, a lot of resources tend to go through cycles, meaning the profit is cyclical and so is investor sentiment.

The Woodside share price is very close to its 52-week high. It's riding high, unsurprisingly.

Woodside delivered revenue of US$5.86 billion in the third quarter of 2022, up 70% from the second quarter of 2022. This was the first full quarter after its merger with the former BHP Group Ltd (ASX: BHP) petroleum business. Woodside achieved a portfolio average realised price of US$102 per barrel of oil equivalent (up 7%).

In its quarterly update, it upgraded its full-year 2022 production guidance to 153 to 157 million barrels of oil equivalent (MMboe).

I like how the business is working on — and making progress with — major projects. They can add to its profit and scale. Combined, the Scarborough and Pluto train 2 projects in Western Australia were 21% complete at the end of the quarter and remain on track for the targeted first LNG cargo in 2026.

At the company's Sangomar project in Senegal, the subsea installation campaign began in September and development drilling progressed, with six of the planned 23 wells now complete. This project was 70% complete at the end of the quarter, with first oil targeted for the second half of 2023.

Is the Woodside share price a buy?

Talking on Ausbiz, Carl Capolingua from ThinkMarkets believes there's going to be a "major supply deficit" with natural gas – he said he's bullish on the resource. He likes Woodside and thinks it's a good longer-term pick considering that around 80% of the business is natural gas.

I agree that profit will likely remain stronger for longer, which should be good for dividend payments.

However, for me, to avoid potential disappointment with the Woodside share price, I don't think buying when resource prices are high is the best time. It could be better to invest when sentiment is lower.

Don't forget that just a month ago, it was trading at under $31. I'd be willing to wait for a lower price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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