Energy stocks have historically been seen as growth stocks, where shareholders aim to make good capital returns rather than relying on dividends.
That has changed in recent years, however, and some of the best dividend plays at current share price levels can be found in the energy sector.
Image source: Getty Images
Oil sector paying out handsomely
Take Santos Ltd (ASX: STO) for example. The oil and gas major, which was once again the subject of a takeover approach that was eventually withdrawn this year, has consistently increased its dividend over the past five years, from just US2.1 cents for the first half of 2020 to US13.4 cents for the first half of 2025.
The company is targeting a return of at least 40% of cash flow to shareholders, which will increase to 100% once the company reaches its target gearing level.
At the current share price, Santos is paying a 5.83% dividend yield, albeit only franked to 10%.
Fellow oil and gas major Woodside Energy Ltd (ASX: WDS) also has a generous dividend policy, aiming to pay out 50% of net profit excluding non-recurring items.
Woodside's current dividend yield is an even healthier 6.73% fully franked.
Among the mid-tier oil and gas producers, Beach Energy Ltd (ASX: BPT) shares have been under pressure and are trading not far off their 12-month lows.
From a dividend perspective, however, it looks rosier, with the company paying out 7.82% fully franked.
The company has flagged that this generous payout might be up for review, however, with chair Ryan Stokes telling the company's annual meeting in November that changes to capital management could be on the table.
As he said in October:
We want to invest to drive growth with a focus on maximising shareholder returns through disciplined capital allocation. This growth will be both organic and potentially inorganic, where it is accretive to shareholder value. We want to growth through accretive opportunities … and we will be disciplined in our approach. As a result, we will review the capital management policy in relation to dividends to ensure it enables growth and maximises total shareholder return.
Analysts, including the team at Jarden, have interpreted this as meaning the dividend could be trimmed, with Beach directing more funds to growth rather than back to shareholders.
Coal companies also pay out well
In the coal sector, the $6.9 billion Yancoal Australia Ltd (ASX: YAL) is paying an exceptional 11.1% dividend, fully franked.
Yancoal's dividend policy aims to pay out the higher of 50% of either net profit or free cash flow, although this is subject to the discretion of the board, which can reduce this to a 25% payout of net profit should it decide this is needed for the sustainability of the business.
Fellow coal producer New Hope Corporation Ltd (ASX: NHC) is paying out a current dividend yield of 8.54%, fully franked, and the company also has a dividend reinvestment plan active, allowing shareholders to reinvest their dividends in new shares.
