When looking at Woodside Energy Group Ltd (ASX: WDS) stock today, the dividend yield is likely to be one of the first things that catches the eye.
Woodside shares closed at $25.29 each on Friday. At this pricing, this ASX 200 energy stock is trading on a trailing dividend yield worth a whopping 7.66%.
Gaining a 7.66% return on your capital every year is an offer that many ASX investors would find difficult to turn down. After all, that's significantly higher than the income currently on the table from most blue chip ASX 200 stocks. That includes the big four banks, both in terms of term deposit rates and the dividend yield from their shares.
When we consider that the dividends from Woodside stock have historically come with full franking credits attached, we are looking at a very compelling income investment indeed.
Or are we? Remember, the dividend yield we are presented with for any ASX share reflects the dividends that the company has paid out over the past 12 months, not what it will (or even might) pay out going forward.
So is this 7.66% dividend yield from Woodside for real, or just too good to be true?
Is Woodside stock a buy for that fully-franked 7.66% dividend yield?
Well, that is hard to say, unfortunately. Most established ASX dividend payers — whether that be the banks, Telstra Group Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES) or Coles Group Ltd (ASX: COL) — tend to slowly but steadily increase their dividends over time. That's thanks to their earnings and profits compounding.
However, Woodside is in a different game. As a commodity company and oil stock, Woodside's earnings and profits are almost completely outside the company's control. They are highly dependent on what the global price of oil is doing.
Woodside's costs of extracting, processing and selling crude oil and its derivatives are relatively fixed. As such, it tends to gush cash when oil prices are relatively high. But when oil prices are low, those cash flows dry up very quickly. That's why Woodside stock has always been an inconsistent dividend payer.
To illustrate, it forked out just 56.3 cents per share in dividends in 2021 in the aftermath of the pandemic (remember that negative oil price?) but a whopping $3.06 per share over 2022.
Oil shares and dividends
Thanks to this paradigm, it would be foolish to assume that Woodside stock's 7.66% dividend yield today has any impact on what dividend income investors will receive from this company over 2025. Buying Woodside shares today could indeed get you a 7.66% yield this year. Particularly if oil surges in value over the next few months.
But there's also a good chance that the yield one will bag will be far lower than that. It's worth pointing out here that oil has been trending down in recent months. It's also worth noting that oil is a highly volatile commodity, and thus a difficult one to anticipate ahead of time.
Earlier this week, my Fool colleague James looked at the view of ASX broker Morgans on Woodside stock. Morgans is bullish on this company's immediate future. The broker gave it an 'add' rating and a 12-month share price target of $33. Crucially, Morgans is anticipating that investors will enjoy a rough 6% yield from Woodside shares if they buy today.
Foolish takeaway
Again, that's just a prediction, though. We'll have to wait and see until Woodside's net earnings to know for sure what kind of dividend income is coming investors' way in 2025. Just don't run out and load up on this oil stock on the assumption that you're guaranteed a 7.66% yield with a buy today.
