Citigroup says Woodside Petroleum shares are now a “buy” because the oil and gas explorer and producer plans to pay out 80 per cent or more of its net profit beyond 2020.
“We think an 80 per cent payout was feasible in this scenario to 2016 whilst maintaining an investment grade credit rating and peak gearing, net debt plus equity, below 35 per cent,” writes analyst Mark Greenwood in a research note.
Greenwood forecasts Woodside shares will have an average dividend yield of 5.4 per cent between 2014 and 2020. If production is flat then the company’s dividend yield will be 8 per cent, he estimates. If production falls Woodside’s dividend yield will be 7.4 per cent, Greenwood expects.
“The stock trades at a modest premium to our discount cash flow for producing assets at $33.66 a share,” the Citi analyst says. “While Woodside’s growth options are long dated, we do think it will make progress, particularly on Browse. In the meantime the strong dividend yield is supportive” of the stock.
At 1216 AEST Woodside shares were up 35 cents, or 1 per cent, to $35.05. The S&P/ASX200 Index added 6.719, or 0.1 per cent, to 4818. Greenwood forecasts Woodside’s share price will rise to $40.35 in 12 months.