Shell (LSE: SHEL) shares have been one of the best sources of dividend income on the FTSE 100 for decades, but they’ve been highly volatile lately.
They crashed in March 2020, on the back of the initial Covid lockdown, when oil plunged below $20 a barrel. As oil tankers drifted the globe looking to offload unwanted cargoes of black gold, Shell’s shares hit a low of 1,062p.
A great time to buy cheap oil stocks
We now know that this was a fantastic buying opportunity for contrarian investors. Today, Shell trades at 2,459p. Anybody who bought its shares three years ago would be sitting on a 131.5% gain. That would have turned a £1,000 investment into an impressive £2,315.
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In practice, they would have done even better than that, as they would also have picked up dividends along the way.
Shell was a true Dividend Aristocrat, renowned for never cutting its dividend since the war, until Covid ruined its proud record. In 2019, its dividend per share was $1.88. That fell to 65 cents in 2020, but is slowly being repaired. In 2021, management lifted the dividend to 89 cents, then to $1.04 last year.
Investing £1k in Shell three years ago would have given me 94 shares. Using my crude maths, dividends would have totalled a bit over £200, taking the total three-year gain past the £2,500 mark. I didn’t buy Shell’s three years ago, sadly, but I wish I had.
The pandemic was unprecedented. Investors were running scared, not just me. Nobody knew how many people would die, or how long lockdowns would last. Those are my excuses for failing to act, but I still should have known better.
I’ll take the next opportunity
I’ve been writing for the Fool long enough to know it pays to take keep a cool head when panic sets in, and look to the longer term. If I’d put that philosophy to work, I could have taken advantage of a once-in-a-lifetime chance to buy Shell on the cheap.
Naturally, buying cheap stocks doesn’t always pay off. They may be cheap for a very good reason. And dividends are never guaranteed. Buying companies like Shell will always involves risk to capital.
Its shares had a volatile 2022 but in a good way this time, with the share price rocketing due to the energy shock. They’re up 29.18% over the last 12 months, and the increase would be higher but for today’s banking crisis.
They fell 4.49% yesterday as global markets sold off over Credit Suisse fears. So it looks like we may have another buying opportunity on our hands.
Shell looks dirt cheap today, trading at just 6.8 times earnings. Investors who got used to the stock yielding 5% of 6% may be disappointed by its 3.8% yield, but there are positives. First, this is covered 3.9 times by earnings, giving scope for progression. The yield is forecast to hit 5.8% next year, with cover slightly stronger at 3.9 times. So it could jump again.
Annoyingly, I don’t have enough money in my trading account to buy Shell today. But I’ll be watching its progress carefully, and when I’ve got the cash, I’ll take advantage of any further share price weakness to buy. Then I’ll hold it for years, and ideally, decades.
