Woodside Targets Significant Dividend Increase

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Woodside Energy’s growth projects should generate cash flow sufficient to materially boost its dividend payout, but investors should not hold their breath.

• Woodside Energy’s growth projects running on time and on budget
• Focus on a selldown and new trains at Louisiana LNG
• Goal to increase dividends by 50%
• Shareholder returns not the focus in the near term

By Greg Peel

Woodside Energy’s ((WDS)) capital markets day highlighted best-in-class execution, with the Scarborough (offshore WA), Sangomar (Senegal), Trion (offshore Mexico) and Beaumont New Ammonia (Texas) projects all progressing on time and budget.

With no change to 2025 guidance, no issuance of 2026 guidance, and no material update to sanctioned growth, the focus was on Woodside’s base case scenario, which highlighted confidence of a further Louisiana LNG equity sell-down and rapid progress towards a final investment decision (FID) on two further LNG trains at Louisiana, and not much else, Jarden comments.

The Pelican State

The capital markets day delivered no major surprises, but confidence in execution continues to build. The market remains preoccupied with Louisiana LNG’s (LALNG) headline returns, Morgans suggests, yet overlooks how the Stonepeak and Williams partnerships (stakes) meaningfully lower Woodside’s funding exposure and execution risk.

Morgans views the company’s risk-averse, partnership-first model of front-loaded third-party capital, fixed-price EPC (engineering, procurement & construction), and disciplined sell-downs, as a proven playbook now being applied globally.

Woodside’s base-case scenario highlights bullishness around an LALNG equity sell-down and expansion. The investor pack provided included a number of charts showing forecast sales volumes, capex, operating cash flow and free cash flow. Of note for Jarden were the assumptions underpinning these charts.

For LALNG, Woodside is factoring in a further -20% sell-down of “HoldCo” and the sanction of trains 4 and 5. Jarden’s forecasts now reflect a further -20% sale at metrics similar to the recent -10% HoldCo sell-down to Williams.

While the broker has not included trains 4/5 in forecasts, awaiting details on costs and timing estimates, Jarden has included risked value for these trains as Woodside has promoted this to its number one unsanctioned growth project.

Citi came away more positive on LALNG economics but acknowledges many remain skeptical. Citi thinks FID of trains 4/5 could occur within two years following further sell-downs, which the broker sees as the next important catalyst for the stock.

Management laid out a positive long-term outlook, saying it was targeting a “step-change in net operating cash flow” to circa US$9bn by the early 2030s, nearly double current levels, underpinned by a 6% compound annual growth rate (CAGR) in sales revenue from 2024 onwards.

Growth in sales and cash flow would, in turn, support a 50% increase in the company’s dividend payout from 2032, which would equate to a 14% dividend yield (at today’s share price) based on a five train Louisiana LNG plant coming online.

Risky?

Ord Minnett notes there are risks to LNG pricing in an environment where more than 200 million tonnes per annum of LNG are planned to come onstream globally over the next five years, more than 50% of which will be from US sources.

Specifically, Ord Minnett highlights three factors that could affect the free cash flow outlook:

(1) A widely expected contraction in the spread between the Asian LNG benchmark, the Japan-Korea Marker (JKM), and the US natural gas benchmark price (Henry Hub), that will reduce the margin available to US-based producers selling into Asian markets;

(2) Woodside’s significant exposure to spot rather than contracted LNG prices; and

(3) minimal exposure to US upstream assets which would partially mitigate the risk of rising Henry Hub prices.

The Second Wave

The capital markets day also introduced a clearer “second-wave” growth picture, Morgans notes, with management flagging conviction in LALNG trains 4-5, Sangomar Phase 2, Trion Phase 2 and Beaumont Phase 2 as value-heavy, long-term value drivers.

Guidance for US$9bn of net operating cash flow from 2032 implies both volume and margin expansion. While LALNG is a lower-returning, mid-stream style project, Morgans suggests it fills the looming production gap from declining Pluto and North West Shelf (offshore WA) fields and adds geographic diversification across the Atlantic and Pacific LNG markets.

There was no material update on other sanctioned growth projects but Jarden remains confident Scarborough is tracking to schedule (second half 2026) and continues to believe first LNG production could even occur in the June 2026 quarter.

Woodside did highlight Pluto Train 1 will be offline for 35 days in 2026 for scheduled maintenance, but the North West Shelf JV is close to sanctioning Greater Western Flank Phase 4.

While Sangomar Phase 2 was not included in Woodside’s base case, Jarden sees potential for rapid progress on the project from 2027, assuming reservoir data and the Senegal tax review are supportive.

Management’s presentation highlighted the cash flow potential from its current growth projects, with forecast operating cash flow increasing from US$5bn in 2024 to US$8bn in 2030 and US$9bn in 2032. While Jarden’s estimates do not match Woodside’s forecasts (due to a US$65/bbl Brent assumption versus Woodside’s US$70/bbl), this broker does forecast gearing peaking at around 20% in 2027 before declining rapidly.

This should support new growth investment from 2028 onwards, Jarden suggests, with Sangomar Phase 2 the next most likely growth candidate. Sangomar Phase 2 is under review as Woodside optimises a development plan and high internal rate of return brownfield projects remain the key focus, Citi notes.

Browse (offshore WA) remains a longer-dated option but is currently challenged in meeting required 12% internal rate of return and payback hurdles.

Market Fatigue

Woodside remains the sector’s best-in-class execution story, Morgans suggests, offering a combination of high reliability, strong dividend yield and a balance sheet positioned to fund growth without strain.

The current share price discount is seen as reflecting both poor oil sentiment and market fatigue rather than fundamentals. With major projects advancing as planned and balance sheet risk declining, Morgans sees a favourable entry point and maintains a Buy rating.

Morgan Stanley views Woodside’s traditional leverage to energy prices as relatively preferable among oil & gas producers in view of the company’s LNG hub exposure versus global peers (10-20% of Woodside’s total production is sold on spot pricing, increasing to circa 40% from 2029).

Woodside’s strategic evolution into gas platform trading (eg LALNG and Beaumont New Ammonia developments) appears logical to Morgan Stanely, but adds uncertainty to near-term cashflows during development.

The Australian East Coast Domestic Gas Market Review is due by year end, Morgan Stanley notes, with Santos ((STO)) seen as the most impacted in this grouping. Morgan Stanley believes Karoon Energy ((KAR)) is least impacted and also offers the most upside potential in this grouping, while Beach Energy ((BPT)) and Origin Energy ((ORG)) are least preferred.

Morgan Stanley sees upside risk skew to its Karoon and Woodside Energy valuations, but stays Equal-weight given the commodity outlook, and development scenarios clouding near-term free cash flow outlook.

The company’s presentation made it clear management was focused on using its balance sheet to drive longer-term value as opposed to boosting returns to shareholders in the shorter-term.

The longer-term prospects for Woodside are appealing to Ord Minnett, which forecasts a dividend yield of 4–5% currently that increases to 8% by 2029 when the broker expects a free cash flow yield of 16%.

But the lengthy waiting period until that free ash flow translates into returns to investors, along with the significant execution risk in the company’s large projects and the vagaries of the LNG market, means Ord Minnett maintains a Hold recommendation for now.

Citi also retains a Neutral rating, as do UBS and Macquarie, but the latter two haven’t updated on the capital markets day.

That leaves one Buy and five Hold or equivalent ratings among the six brokers monitored daily by FNArena covering Woodside Energy. The consensus target is $25.78, a tick up from $25.62 prior to capital markets day.

Jarden’s new target of $25.40, up from $24.70, (due to the LALNG sell-down, T4/5 risked value, North West Shelf Greater Western Flank Phase 4) includes unrisked value for producing assets and Scarborough/Trion.

Key risks to this broker’s Overweight rating, Jarden notes, include production, commodity prices, growth project timing/costs and delays in equity sell-down at LALNG.

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