Santos Ltd (ASX: STO) shares have trended higher for much of the year as recurring tensions between the US and Iran have fuelled concerns over global oil supplies and supported energy prices.
The oil and gas producer's shares spiked in February and March, around the time news first broke that conflict had escalated between the two nations. The shares continued climbing in value as the war heated up.
Rising oil prices were the main tailwind for Santos shares, as tight oil supply made prices highly volatile.
But every time there is renewed optimism about a potential US-Iran peace agreement, the price of oil softens, and the Santos share price follows suit.
There have been company-specific tailwinds, too.
A few company-specific price drivers, including a rise in production and improved cash flow, also helped drive Santos shares higher over the past few months.
Its free cash flow from operations of US$383 million was in line with Q4 2025. Management also reaffirmed its FY26 production and cost guidance.
At the time of writing, the shares are trading at $7.54 per share, up around 23% year to date.
Market Index data show that brokers are very bullish that the shares can keep climbing. At the time of writing, all brokers agree on a buy rating. The $8.65 target price implies a potential 15% upside ahead.
The outlook for Santos shares looks positive. But it's not the only reason investors should consider adding the stock to their portfolios.
Image source: Getty Images
Santos shares are a great passive income play: Here's why
Santos is inherently a cyclical stock, which means its share price is closely tied to oil and gas prices. There is also the risk that a sustained decline in oil or LNG prices could reduce profits and pressure future dividends.
But the trade-off of higher potential risk and volatility is that Santos is able to offer a relatively stable dividend yield and strong cash-flow generation from major natural gas and LNG projects. At present, there is strong global demand for liquefied natural gas (LNG). Elevated crude oil prices are also directly boosting Santos' sales revenue and operational cash generation.
Ok great, what does Santos pay its shareholders?
Santos has a long history of paying dividends to shareholders dating back to 2004. The oil and gas producer typically pays its investors twice-yearly dividends. This consists of an interim dividend in October and a final dividend in March.
Santos' latest final dividend payment in March was 14.5 cents per security, unfranked. Shareholders were also paid an interim dividend of 20.3 cents per security, 6.6% franked, in October last year.
At the time of writing, that translates to a trailing dividend yield of around 4.5%.
