Royal Dutch Shell (RDS.B) a high quality high dividend yield company

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Royal Dutch Shell (RDS.B) a high quality high dividend yield company

Published Date: 2018-06-21 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Royal Dutch Shell (RDS.B) a high quality high dividend yield company

Shell the second largest oil giant explores and extracts crude oil and natural gas. It converts gas to liquids, transports gas, extracts bitumen from oil sands. The company also generates electricity from wind. The company sells petrol, diesel, heating oil, avgas, liquified natural gas, lubricants. It also manufactures and sells many different petroleum by-products. Shell is involved in alternative energy research as well.

Shell was founded in 1907. Shell investor website defines their strategy as follows:

Shells investor website makes interesting reading. It can be found here: Shell Investor Relations

Shell has handled the recent oil price crash well. The oil price has dropped from over a $100 per barrel in mid-2014 down to $30 per barrel in Jan 2016. During this period Shell cut capital investments that were not highly profitable. Further Shell cut costs and improved efficiencies bringing down their breakeven point to about $45 a barrel. Shell froze its annual dividend at $3.76 during this period. With the rising oil price and increasing demand Shell's profits are improving.

Currently Shell has a dividend yield of 5.3% Shell has paid out dividends for the last 12 years in a row. The dividend is expected to begin increasing again in 2019.

Currently Shell pays out 45% of its profits in dividends which is a safe pay out ratio. The companies net debt-to-capital ratio is also safe at just over 20%. RDS has generated free cash flow in the last 8 out of 10 years, indicating that the dividend is not at risk. The company's earnings have grown in the last 3 quarters. The company has a healthy A+ credit rating from S&P. Shells current share price is $71.

Shell has assets of $410 billion.

An image of a shell filling station

The main risk in investing in Oil and Gas companies is the possibility of long term reducing demand. More environmentally friendly sources of energy are being explored as climate change challenges O&G companies. The estimates of when oil demand will peak vary wildly from 2023 to 2070.

Oil demand is still increasing being led by countries such as India and China. Electric cars are not expected to impact oil demand for at least another 10 years.

Shell management is acutely aware of this trend and is actively exploring lower carbon energy systems.

Shell purchased the BG group just prior to the oil price crash. By 2020 they should have paid off this acquisition. Thereafter the companies cash flow should improve.

Shell issues two shares RDS.A and RDS.B The main difference is that Class A share have Dutch source tax deducted. See the investor website for further details.

With the high dividend yield, a total forecast annual rate of return of 15% for the foreseeable future and the company's strong recent results, Shell should be a great investment.


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research


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