The Woodside Energy Group Ltd (ASX: WDS) share price has dropped around 20% in the last six months and 11% in the past month, as shown on the chart below. However, when a valuation declines it can mean buying at a better price.
Another benefit of a lower share price is that it can lead to a higher dividend yield. For example, if the dividend yield was 6% and the share price fell 10%, the yield could become 6.6%.
As an ASX energy share, the company's success is heavily aligned to movements in the respective commodity prices.
It's very difficult to know what the oil and LNG prices will do, but analysts have to make estimates about what they think will happen to energy markets, profit, the dividend, and the Woodside share price. So, keep in mind that the actual results could be significantly different from what analysts predict.
So, let's take a look at what a $10,000 investment in Woodside shares could do.
Profit and Woodside share price target
Woodside recently announced the acquisition of OCI ammonia for a total cash consideration of US$2.35 billion, which is expected to be completed in the second half of FY24. The broker UBS has included this latest deal in its forecasts for the ASX energy share.
UBS is projecting that Woodside could generate US$2.7 billion of net profit after tax (NPAT) in 2024 and US$2.4 billion of NPAT in 2025. Investors usually value a business based on its current and expected profit.
A price target is where an analyst thinks the (Woodside) share price will be in 12 months. UBS currently has a price target of $31 on the business – which implies a possible rise of 22% from where it is today.
Woodside dividend
Due to the recent deals that Woodside has done, UBS said the balance sheet will be at the top end of its gearing target range of between 10% to 20%, and it could be higher if Woodside does not complete timely sales of stakes in some projects.
UBS' base case assumes that Woodside decides on a dividend payout ratio of 80% of net profit, but if leverage stays higher for longer it could mean lower distribution payouts.
For FY24, UBS is predicting Woodside could pay an annual dividend per share of US$1.14, which translates into A$1.74 at the current exchange range. That would be a dividend yield of 6.85%.
Total return
UBS is suggesting that the Woodside total return could be approximately 28.8% over the next 12 months.
If someone were to invest $10,000 shares in Woodside shares today, it could possibly grow to become $12,880 between the possible capital growth and the forecast dividend.
If Woodside does deliver a total return of almost 30%, it probably has a very good chance of outperforming the broader S&P/ASX 200 Index (ASX: XJO).
