ii view: TotalEnergies optimistic on production and dividend

Strategy and outlook presentation

• Targeting annual growth in energy production of 4% until 2030
• Committed to a dividend increase of more than 5% per year until 2030
• Targeting a debt gearing ratio of under 10% by end of 2026

ii round-up:

Paris headquartered TotalEnergies SE (EURONEXT:TTE) has offered positive production and dividend growth forecasts against the backdrop of elevated energy prices following war in the Middle East.

Group-wide production out to 2030 is expected to grow by 4% per year, with output to 2035 then predicted to increase by 2-3% a year. As such, Total is committing to shareholder returns of 40% of cash flow which will push growth in the dividend of 5% or more to 2030.

Shares in the Euronext listed company lost a little ground following the announcement having come into this latest news up around 44% so far in 2026. Rivals Shell (LSE:SHEL) and BP (LSE:BP.) are up by closer to 30% during that time. The Euronext 100 is up almost 11% year-to-date.

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Total operates in nearly 120 countries including Liquefied Natural Gas (LNG) operations and the generation of over 24 Gigawatts of renewable energy output.

Higher prices and increased cashflows now see Total raising the near-term share buyback to between $4.5 billion and $5 billion over the combined Q4 2026 and Q1 2027, ahead of City forecasts of around $3.2 billion.

Elevated cashflows are also expected by management to take the group’s borrowing, or gearing ratio to under 10% by the end of 2026 – a potential fall from 13.1% in late June.

Electricity generation, driven by renewable production, is expected to rise by 20% per annum to around a fifth of the group’s energy mix by 2030 and a quarter come 2035.

Growth in output targets is supported by expected net investment of between $14 billion and $17 billion between 2027 and 2032, a potential increase from an expected $15 billion in 2026.

Broker UBS reiterated its ‘buy’ rating on the shares post the update, highlighting a target price of €88 per share. Third-quarter results are scheduled for 29 October.

ii view:

Started in 1924, the company changed its name from Total to to TotalEnergies in 2021. Operations include Exploration & Production, Integrated Gas, Renewables & Power - including solar and offshore wind - as well as Refining & Chemicals. Over 13,000 service stations include more than 78,000 EV charging points.

For investors, interest rate rises needed to tame inflation caused by high energy prices may now dampen energy demand. The impact of the conflict in the Middle East is estimated to have reduced group production by between 5% and 10% due to the shutdown of facilities in Qatar, Iraq and offshore UAE. The volatility of energy prices in recent years from the lows of the pandemic to highs following Russia’s invasion of Ukraine should not be forgotten, while the pricing of Total’s shares in euros also adds the additional risk of currency movements for UK investors.  

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More favourably, production start-ups are expected to aid growth in output to 2035. Diversity of operations includes targeted growth in both fossil fuels and renewable energy production. Targeted cost savings between 2026 and 2030 were previously raised to $12.5 billion from $7.5 billion, while an estimated two-year average Return on Capital Employed (ROCE) of 11.1% is above the 10.4% and 9.5% estimates at rivals Shell and BP. 

In all, a negotiated end to the war between the US and Iran could come anytime, with an expected easing in energy prices. That said, a diversity of businesses and planned output increases support a forecast dividend yield of around 4.5%, giving grounds for income investors to remain interested.

Positives:

• Geographical diversity of operations
• Attractive dividend payment (not guaranteed)

Negatives:

• Uncertain economic outlook
• Currency risks

The average rating of stock market analysts:

Buy