Telstra Group Ltd (ASX: TLS) stock and Woodside Energy Group Ltd (ASX: WDS) stock both have their positives. But which is a better choice for passive income?
Telstra is the biggest ASX telco share, while Woodside is a major ASX energy share – it's one of the biggest operators in the region.
I'm going to compare them on three key points that would help me choose between them.
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Dividend yield
As industry giants already, their growth prospects are less than when they were first starting out as much smaller businesses. That's why I think the dividend returns are an important part of the picture.
Both of these ASX blue-chip shares are known for their dividends, so let's look at which one might pay better dividends in FY24 and beyond.
Telstra has recently returned to dividend growth with its profit returning to sustainable increases. According to the estimates on Commsec, Telstra could pay an annual dividend per share of 18 cents in FY24 and 20 cents per share in FY26, translating into a grossed-up dividend yield of 6.75% and 7.5%, respectively at the current Telstra stock price.
With significant exposure to energy volatility, the Woodside dividend can be quite volatile and follow the direction of oil and LNG prices.
Based on the projections on Commsec, owners of Woodside stock could get a grossed-up dividend yield of 7.9% in FY24 and 6.4% in FY26.
While Woodside may offer slightly larger income in FY24, Telstra's dividend could keep climbing while Woodside's may fall.
Growth
Revenue and profit growth are driven by different factors for each business.
Telstra is seeing steady subscriber growth as more Aussies sign up with the country's biggest telco. More users means the infrastructure is being better utilised, which can lead to rising profit margins. The Telstra FY24 first-half result saw total income growth of 1.2% to $11.7 billion while net profit after tax (NPAT) rose 11.5% to $1 billion.
The telco is investing in things like cybersecurity and digital health, which is helping it diversify earnings and open up more growth avenues. Expanding its 5G network is a key focus.
Woodside has a different reporting calendar and recently reported its 2023 full-year result. It reported a 17% drop in operating revenue to US$14 billion, a 37% decline in underlying NPAT to US$3.3 billion and a 74% plunge in reported NPAT to US$1.66 billion.
No one can truly know what's going to happen with energy prices, but Woodside continues to work on new projects that can grow its production. Trion, a "large, high-quality resource" is one example, it will be Mexico's first deepwater oil development.
Defensive earnings?
The decisive factor for me is how predictable and defensive Telstra's earnings are – I'd guess nearly all households and businesses would choose to keep paying for their internet connection if they can afford it. The profit is predictable and growing, making Telstra stock very appealing.
However, Woodside is heavily reliant on energy prices for its annual profit and we really don't know what's going to happen next. Its profit could rise 20% next year or halve, it's unpredictable. If I'm looking for income, I'd rather know what I'm roughly going to receive next year.
The only time I'd personally consider Woodside shares for my own portfolio as a possible market-beating investment is when energy prices are really weak, which could open up a cyclical rebound opportunity.
However, remember the world is looking to decarbonise and reach net zero by 2050, so I'm not sure when the right time to invest in an oil and LNG producer is in the coming years if demand is going to slow. It would be beneficial for Woodside if its hydrogen efforts are successful in the future.
