Santos will increase dividend payouts and buy back more shares in a win for investors

Santos will pay more out in dividends and buy back more of its shares, and says shareholders can expect even more once major projects are completed.

Santos's oil and gas site at Port Bonython, South Austrlia. Picture: Supplied

Santos has simplified and boosted its dividend payout policy to 40 per cent of free cash flow and flagged the rate could go even higher once major projects are operational.

The energy major told the ASX on Wednesday it would buy back another $US350m of its shares by the end of the year, adding to the $US350m buyback announced in August which is 98 per cent complete.

It has also increased its dividend policy to reflect a payout of 40 per cent of free cash flow from operations, excluding major growth projects.

The company last updated its capital management program in April, however it is understood that investors have told the company that the tiered approach to dividend payouts was too complex, and also fell short of expectations.

The previous policy targeted a payout of 10-30 per cent of free cash flow at an average Brent oil price of up to $US65.

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Once the oil price went over that mark, additional returns - either through dividends or buybacks - would be calculated at 40 per cent of incremental free cash flow.

The new policy has simplified this structure and increased the target payout, while leaving the gearing target the same at 15-25 per cent.

Santos chair Keith Spence said in the company’s statement to the ASX on Wednesday shareholders could also benefit from asset sales and even higher returns once major projects were completed.

“In addition, the board shall give consideration to additional shareholder returns from any net proceeds derived from asset divestments through portfolio optimisation once those

divestments reach completion and proceeds have been received,” Mr Spence said.

“Once the Barossa and Pikka Phase 1 projects commence production, the board’s intention is to consider increasing shareholder returns to at least 50 per cent of free cash flow

generated per annum.”

The Barossa gas project which will feed into the Darwin LNG plant is expected to start production in the first half of 2025 while Pikka, an oil project in Alaska, is targeting first oil in 2026.

RBC Capital markets said in a note to clients the change was a positive for the stock.

“We view Santos’ new capital management initiatives as a positive, mainly because it provides potential for further upside in returns to shareholders in future years in comparison to Santos’ prior policy,’’ the broker said.

“A key difference is the new policy is purely free cash flow focused, and it does not include an oil price reference. In addition, the Santos board has a confident outlook for the company and it intends to give consideration for additional shareholder returns from asset divestments.’’

RBC has a price target of $9.50 on Santos against its $7.20 share price on Wednesday, which was down 0.7 per cent.

Originally published as Santos will increase dividend payouts and buy back more shares in a win for investors