Is the 11.3% dividend yield on Woodside shares for real?

Looking at the Woodside Energy Group Ltd (ASX: WDS) share price today, it’s likely that one metric will jump out at you. That would be Woodside’s seemingly monstrous dividend yield.

Today, Woodside shares have had a pretty rough time. The ASX 200 energy stock closed at $30.53 a share yesterday. But this morning, Woodside shares opened at $30.29 each, and are currently trading at just $30.10, down a chunky 1.42% for the day thus far.

This fall has resulted in Woodside shares trading on a trailing dividend yield worth a whopping 11.29%.

Woodside’s dividend payments normally come with full franking credits attached too, so that 11.29% yield can be grossed up to a huge 16.13% with the value of those franking credits.

Well-trained dividend investors might be hearing alarm bells by now. After all, it’s not too often that we see a company trading on dividend yields of this magnitude. Well, not unless they turn out to be dividend traps, of course.

So is this massive dividend yield from Woodside shares for real?

Trailing dividends yields and traps

Well, a company’s trailing dividend yield is calculated based on the shareholder income that the company had paid out over the past 12 months.

In Woodside’s case, shareholders were treated to a final dividend of $2.15 per share in April last year. As well as the September interim dividend of $1.24 per share. As we touched on earlier, both of these divided payments came fully franked.

Plugging that annual total of $3.39 in dividends per share gives Woodside shares a trailing yield of 11.29% at current pricing. So that all checks out.

However, this dividend yield from Woodside is a trailing yield. That means it reflects what investors have enjoyed in the past. Not what they can expect in the future.

We can’t know what any ASX dividend share will pay out going forward until the company in question lets us know. In Woodside’s case, the company’s next earnings are scheduled for 27 February next week.

Dividends from cyclical companies like miners and oil drillers are particularly hard to predict. That’s because the profitability of these companies rests on something that is completely out of their control: what price they can sell their commodities at.

In Wodside’s case, this would be the global oil price.

The general rule for Woodside is that if oil prices remain high going forward, Woodside’s dividends will be larger. But the opposite is also true.

Will Woodside shares pay an 11.3% dividend yield in 2024?

Oil prices have been trending downward for the past few months. That’s probably why analysts are predicting lower dividends from Woodside shares in 2024.

As my Fool colleague Bronwyn discussed last week, the consensus forecast of analysts on CommSec is that Woodside will fund annual dividends of just $1.62 per share in 2024.

If that is the case, Woodside shares would have a forward dividend yield of 5.39% today. That’s nothing to be sneezed at of course. But it’s still around half of the company’s current trailing dividend yield of 11.29%.

Regardless of how large Woodside’s next dividends will be, this exercise just goes to show why investors should never use a trailing dividend yield to make an investment decision.

The post Is the 11.3% dividend yield on Woodside shares for real? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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