Royal Dutch Shell’s shares now yield almost 14%! I’d buy them

The Royal Dutch Shell plc (LON: RDSB) share price and sky-high yield are impossible to ignore.

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.

The stock market crash has thrown up some incredible opportunities across the FTSE 100. The Royal Dutch Shell (LSE: RDSB) share price is one of the most dramatic. It’s halved over the last month and now trades at a bargain bin valuation of 5.7 times earnings.

Shell’s fabled dividend has hit fantasy levels, with the yield an unbelievable 13.98%. Today’s rock-bottom valuation double-digit yield makes Shell a buy in my book, if you’re feeling brave.

While the coronavirus is responsible for most of the stock market correction, oil majors like BP and Shell have to contend with another monster-sized problem, the collapsing oil price. This is partly down to Covid-19 suppressing demand as people stop flying and driving to work. But it’s even more to do with the battle for supremacy between Saudi Arabia and Russia.

Oil market crash too

Both countries have launched a do-or-die price war and remain committed to flooding the market with oil. There’s been talk of crude hitting $20 a barrel, although it’s staged a rally in recent hours, lifting a barrel of Brent to around $32.

That’s lifted the Royal Dutch Shell share price as well, which is up a thumping 10% today, following a rise of almost 5% yesterday.

Don’t feel pressured into making a purchase. The combined coronavirus and oil price crises are far from over. Keep a cool head and examine the underlying business and market trends, before committing your money.

Shell is all about dividends

The Shell share price wasn’t exactly firing on all cylinders before the stock market crash. Many argued it was turning into a pure income play, with minimal growth prospects. The drive towards decarbonising the global economy squeezed its prime source of revenue. Shell was thought to be in a better position than BP though, having a greater focus on natural gas and renewables.

Shell has a famous record of never once cutting its dividend since 1945, an impressive 75-year run, while BP has cut just twice in the last 30 years. If it can maintain current payouts, those brave enough to buy the Shell share price during the stock market crash are locking into a massive future income stream.

On the other hand, Shell has a break-even price of $63 a barrel, higher than BP’s $53. I don’t see the oil price returning to those levels for a long time, unless high-cost suppliers go down in droves.

Royal Dutch Shell share price is a buy

Shell was anticipating $28bn-$33bn free cash flow this year, when oil stood at $65. That guidance has been blown to pieces. However, management has borrowed before to fund payouts, and I can see that happening again. The board won’t want the dividend record to end on its watch.

Its commitment will be tested more than ever. And if the coronavirus and oil price slump extend, something will have to give. Mind you, even slashing the dividend by half would give you 7% a year. I think the rewards outweigh the risks.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »