The Woodside Energy Group Ltd (ASX: WDS) share price has not had a very pleasant few months. In fact, this ASX 200 energy stock's performance over 2024 so far has been pretty dismal.
Woodside stock began the year trading at $38.29 a share. But on Friday, those same shares last traded at $25.49 each, down a painful 18.9% year to date.
However, this share price fall has yielded something of a silver lining. Literally.
Woodside's dividend yield is now sitting at a fat 8.45%. As any dividend investor would know, lower share prices mean higher dividend yields if the company's raw dividend per share payouts remain constant.
That 8.45% yield is even more compelling, as Woodside's dividends typically come fully franked as well. If we include the value of those full franking credits, that yield on Woodside shares would gross up to an appealing 12.07%.
That's obviously an attractive proposition for income investors today. But does it make the Woodside share price a buy?
Are Woodside shares a buy for that 8.45% dividend yield today?
Although an 8.45% dividend yield looks like something too good to miss, there are a few things to note here.
The first is that the earnings of energy and oil stocks are highly volatile compared to other ASX shares, even blue-chip ones like Woodside. These companies' profits almost completely depend on what the price of crude oil and its derivatives happen to be trading at.
This, by extension, also means that the dividends that these companies pay out are just as cyclical. In fact, they can be described as following a 'feast and famine' pattern.
Just looking at what Woodside has paid in dividends over the past two years illustrates this well.
Back in April 2023, Woodside paid a chunky dividend of $1.44 per share. But the company's final dividend for 2024 was less than half of that payment, at just 60 cents per share. This, as you might have guessed, reflects a far lower crude oil price in 2024 compared to 2023.
Remember how we noted that Woodside shares have had a rough year in 2024 to date? This is probably why.
Yet Woodside's current dividend yield reflects March's final dividend, but also the interim dividend of $1.24 per share that we saw back in September 20203. I would be very surprised if Woodside comes up with a dividend even remotely in that kind of ballpark when it reveals 2024's interim payment later this month.
As such, I think there's a very low likelihood that if an investor buys Woodside shares today, they will actually receive a dividend yield of 8.45% over the coming 12 months. Dividend yields always represent past payouts, not future income guarantees.
Foolish takeaway
I don't own Woodside shares and have no plans to buy this company. Saying that, I would buy Woodside shares today as part of a diversified dividend portfolio if maximising dividend income was a primary goal of my investing strategy.
Sure, the income wells are not running as full as they were in 2022 or 2023. But oil prices are cyclical, and buying Woodside shares during a 'famine' will likely yield some spectacular results when the next 'feast' rolls around.
