Looking at the ASX's most prominent energy shares right now, you might do a double-take on some of the dividend yields you see.
Take leading oil and gas stock, Woodside Energy Group Ltd (ASX: WDS). At the current (at the time of writing) share price of $23.80, Woodside shares are trading on a trailing yield of 7.85%.
Karoon Energy Ltd (ASX: KAR) shares currently have a yield of 4.98% on the table, just pipped by Viva Energy Group Ltd (ASX: VEA)'s 5.03%. Santos Ltd (ASX: STO) and Beach Energy Ltd (ASX: BPT) both trade on yields well north of 3%.
Considering these hefty yields, especially when compared to other popular ASX dividend shares whose yields have been blunted by rising share prices, many income investors might be tempted to load up the boat today.
Here's why I think that could be a mistake.
ASX energy shares: Why dividend income investors should stay away
Firstly, many of these dividend yields mentioned above might not be indicative of the income shareholders receive going forward. Remember, a company's dividend yield only reflects what it has paid out in the past 12 months, not what it will pay out. Over 2024 and most of 2025, global oil prices have been coming down, and rather fast. One barrel of WTI crude was going for around US$85 back in early 2024. Today, that same barrel will only cost US$65 (despite a brief spike to US$75 earlier this month).
This indicates that many ASX energy shares will struggle to maintain past payouts going forward.
Secondly, it looks as though oil prices are on a long-term trend downwards. For one, demand is slowly falling as countries, particularly China, move to electrified transportation. For another, US President Donald Trump has made no secret of his desire to see oil as low as possible. His administration has put pressure on allies to increase oil production while lowering restrictions on exploration and drilling at home in the United States.
Whilst this would no doubt please the world's motorists, it means less money in the pockets of ASX energy shares like Wodside, and by extension, their shareholders.
Aside from another outbreak of war in the Middle East (let's hope not), I don't see any catalysts ahead that would result in a bull market for oil prices in the next few years. As such, I think most ASX income investors should avoid piling into energy shares right now, despite those apparently high dividend yields.
