Is the Shell share price the bargain of the year?

Here’s why I think Royal Dutch Shell plc class B (LON: RDSB) offers the best combination of low share price and reliable dividend there is.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If I had to choose just one stock to buy today and hold for 10 years, my choice would be easy. There are plenty I like the look of — still can’t see Lloyds Banking Group as anything but undervalued, I reckon AstraZeneca could well be on the cusp of a new growth phase, and forecast dividends of more than 5.5% from National Grid look very tempting.

There are more too, but for me by far the tastiest on the market right now is Royal Dutch Shell.

I don’t yet own any Shell shares, and you’d be quite right to ask me why I haven’t put my money where my mouth is. But the key word is “yet” and I will be buying some as soon as I complete the tortuous process of getting some pension funds transferred.

Why Shell?

My colleague Roland Head summed it up nicely by saying “the shares trade on a modest 12 times forecast earnings with a dividend yield of 5.9%. In my view, this is one of the safest dividends you’ll find.” Let’s dig a bit deeper.

The shares are currently priced at 12 times forecast earnings for 2019, and that would drop to only a little over 10 if the earnings growth predicted for 2020 proves accurate. The long-term FTSE 100 average stands at around 14, so on its own that’s a positive indication. But not enough to swing it.

Cash

Next up is the key attraction for me, the dividend. Currently forecast at 5.9% based on today’s share price, that’s a cracking annual return. It beats the pants off a Cash ISA where you’d be lucky to get 1.5%. And it’s significantly higher than even the record FTSE 100 average of 4.9% predicted for 2019.

A 5.9% yield would double the value of an investment made today in approximately 12 years. That’s from dividends alone, and any share price growth would be a bonus. Is the dividend as safe as Roland thinks? It’s something I repeat often, but it’s a stunning fact… Shell has not cut its dividend even once since the end of World War II, and that includes the 70s oil crisis and the recent oil price slump. I can’t see safer than that.

Oil price

You might think that Shell’s future is going to depend a lot on the price of oil, but I see that as really only a short-term concern. The dip to $30 per barrel in 2016 was unsustainable, as whole countries would have gone bust in the long run at that price. Shell is profitable at around $50 and, at current prices, is throwing off masses of cash.

Hurdles?

What else might hurt Shell? Some folk foresee the end of our dependence on oil. That’s a genuine concern, but surely only a very long-term one. We’ll see more carbon-efficient ways of using oil, for sure, and growth in electric-powered transport will shift to centralised combustion with the potential to be far cleaner and more efficient.

But there just isn’t a source with sufficient energy density to replace oil any time soon (other than nuclear power, which is pretty much off the table). And which companies have the expertise and the cash to develop alternative ways of generating energy (including from oil itself)? I’d say the likes of Shell.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended AstraZeneca and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »