Santos Ltd (ASX: STO) shares are marching higher today.
Shares in the S&P/ASX 200 Index (ASX: XJO) energy stock closed yesterday trading for $6.49. In morning trade on Tuesday, shares are swapping hands for $6.56 apiece, up 1.0%.
Santos shares look to be enjoying some added tailwinds today amid a 0.7% overnight boost in the oil price. Brent crude oil is currently trading for US$65.07 per barrel. Brent crude oil hit multi-year lows of US$60 per barrel on 7 May.
With today's boost factored in, Santos shares remain down 14% over the past 12 months. Though that doesn't include the 35.4 cents per share in unfranked dividends Santos paid eligible shareholders over the year. Santos currently trades on a 5.4% trailing dividend yield.
More recently, the ASX 200 oil and gas stock has been on a strong upward trend, with shares now up 23% since the recent closing low on 9 April.
And according to Bell Potter Securities' Christopher Watt, Santos is well placed to deliver more outperformance, and juicy dividends, in the year ahead (courtesy of The Bull).
Santos shares 'fundamentally cheap'
"The energy giant is fundamentally cheap, trading on a modest earnings estimate in fiscal year 2025 and a forecast dividend yield of about 6%," said Watt, who has a buy recommendation on Santos shares.
Atop its cheap valuation, Watt recommends the ASX 200 energy stock as a buy because, "The balance sheet is strong, with gearing at 18.7%. Capital expenditure discipline was evident in first quarter results."
The third reason to consider buying Santos today is the company's growth projects.
According to Watt:
Barossa LNG and Pikka Oil are tier one projects, delivering step change volume and margin expansion from fiscal year 2025 onwards. STO's integrated model – linked gas, LNG, and oil – provides stable revenue across the cycles.
And the fourth reason is Santos' low-cost production profile.
"With breakeven below US$35 a barrel and cash flows improving, Santos is positioned for capital returns and earnings growth," Watt said.
What's the latest from the ASX 200 energy stock?
The last price-sensitive news released for Santos shares was the company's quarterly update on 17 April.
Santos reported free cash flow from operations of US$465 million for the three months to 31 March, up 9% from the prior quarter. Capital expenditures were down 12% from the December quarter to US$613 million.
As for the growth projects Watt cited above, the company reported that Barossa LNG was 95.2% complete, with Pikka phase-1 82.2% complete.
First production at Pikka was still flagged for mid-2026, but management hinted an early startup could be on the cards.
Santos shares closed up 2.9% on the day the company reported.
