Is Royal Dutch Shell B a stonking buy?

ClarkeKent

Royal Dutch Shell B shares currently yielding over 8% dividend. Share price well down form the peak.

Even with rumoured dividend cut seen in the Mail on Sunday today, this looks great value to me. The divi hasn't been cut since 1945 which means when the prices of oil go back up we can expect a similar dividend rate to now.

So with potential capital growth and a stonking historic yield. Is now the time to buy?

PS - In theory were the current divi never be cut, you would get a 8% dividend for life. Reinvest and this grows even bigger. So even if this went back up to £20, not only would you have 40% capital growth but the dividend would still be 8% of the price you bought at now.

bigfreddiel

I would not be so sure of Shell being a good buy. The divi is only 8% because the value of the shares are so far off their peak.

All depends on the mix of shares on your portfolio and if this sector will enhance it?

Cheers fj

CLAPTON

ClarkeKent wrote: »

Royal Dutch Shell B shares currently yielding over 8% dividend. Share price well down form the peak.

Even with rumoured dividend cut seen in the Mail on Sunday today, this looks great value to me. The divi hasn't been cut since 1945 which means when the prices of oil go back up we can expect a similar dividend rate to now.

So with potential capital growth and a stonking historic yield. Is now the time to buy?

PS - In theory were the current divi never be cut, you would get a 8% dividend for life. Reinvest and this grows even bigger. So even if this went back up to £20, not only would you have 40% capital growth but the dividend would still be 8% of the price you bought at now.

why don't other clever investors think they are a buy?

le_loup

Dividend is likely to fall this coming year.

Apodemus

Also remember that the RDSB dividend is priced in US$, so future yield will also reflect currency movements. Dividend will almost certainly fall, at least in the short term and it could be a long time before there is any meaningful recovery in share price. As mentioned above, if there was widespread belief in Shell, amongst that know more than us about it, that would be reflected in the price.

Having said that, I topped up my holding a couple of weeks ago at £13.52/share.

Thrugelmir

ClarkeKent wrote: »

The divi hasn't been cut since 1945 which means when the prices of oil go back up we can expect a similar dividend rate to now.

Go back up to what though?

What relevance does 1945 have. This is now.

Flobberchops

Oil stocks and also some mining ones look, on paper at least, very attractive at the moment, especially if you subscribe to the idea that what goes down must go up. For example, Anglo American (Lon: AAL) with a current dividend yield of over 20%. Goes without saying these stocks are dripping with risk, but a bold investor could potentially make good returns here.

bowlhead99

Flobberchops wrote: »

Anglo American (Lon: AAL) with a current dividend yield of over 20%

Ahem. I know you are not recommending the shares as being low risk, but 'current' dividend yield is a bit of a stupid term for it for a couple of reasons.

1) In layman's terms, current yield or current dividend implies it is some kind of dividend people could 'currently' get. But of course if you look for examples of people currently getting that dividend from that company, you can't see them. None of the people actually receiving the $0.32 per share which went ex-dividend in August (and which was funded from only $0.17 of accounting earnings in the first half of 2015), achieved a yield of over 20%. The share price that week to get paid the dividend was about 800p. The share price over the first half of the year when the 17c was actually earned, averaged over 1000p.

So, what the people mostly received was a dividend of 20p for half a year out of profits of 10p for half a year after having to pay a tenner for the shares. Most paid more than ten pounds for it. In the five years prior to June, they paid between £10 and £35. Even the canny buyers at the bottom of the market crash in March 2009 paid £10. This is not a company that has a reputation for paying out a fifth of its share value in profits and so you would not expect the disastrous markets for their products to make them want to start doing that now.

2) Secondly, 'current' dividend yield implies the company currently pays dividends at all. As mentioned, they last paid dividends based on the (poor) profits from the first half of 2015. AAL have specifically announced that they are not going to pay a dividend for the second half of 2015 and they are not going to pay a dividend for 2016. They need to do this to protect their balance sheets because they are not making enough money. They have said that when it resumes they will aim to keep it at a payout ratio of profits that they can actually afford. And those profits are much reduced from the past.

http://otp.investis.com/clients/uk/anglo_american2/rns/regulatory-story.aspx?cid=49&newsid=621657

The idea of looking at a current price that you must pay to buy a share and own its future stream of dividends, and decide if that price is 'expensive' or 'cheap' - requires you to make at least a cursory assessment of what those dividends will be. To do it purely by comparing today's price against the last dividend number you saw them pay out, is somewhat flawed. A low yield sounds like 'good value' but when it is just a quirk of maths and not based on future expectations, it is (as you say) 'dripping with risk'.

On a historic basis you might say the company is priced at five times a year's dividends (a 20% yield); I have not done the maths to check that. But the dividends are going to be zero for 2016, so it's valued at infinity times a year's dividend which is not a 20% yield.

• I do appreciate you are not saying the shares are risk free, quite the opposite, and it is of course possible to make money by buying collapsed shares at the right time. But basically any time people say a share "... is currently yielding" like the OP did with Shell or you did with AAL, it makes my blood boil a bit because it is a dangerous statement to make around newbie investors if you're actually referring to some arbitrary historic yield rather than forecast yield for the current period.

Sam_J12

I think oil and commodity companies are definitely worth considering right now, provided you are thinking of the long term. The prices for many of these companies (including Shell) seem clearly attractive right now, due to the market dip and current collapse in commodity prices. In the long term, this situation is bound to improve, but in the short term could get even worse. So if you are looking to hold these shares for the next ten years or longer I would be tempted to consider it, but if you are looking to try to make a nice profit in the next two or three years I would avoid.

Don't buy into the argument that many people here make that if the price was so attractive, others would already have bought up the shares. That is an argument never to buy any equities. The market in clearly not efficient in the short term, and there are plenty of good opportunities.

bowlhead99

Sam_J12 wrote: »

The market in clearly not efficient in the short term, and there are plenty of good opportunities.

This is true, as investors generally buying stocks in 2009 will testify. The trick is to sort the good opportunities from the bad and not be suckered in by things that glitter but are not actually gold. (Not that I'm advocating gold as an investment either, just a metaphor)

redux

Sam_J12 wrote: »

So if you are looking to hold these shares for the next ten years or longer I would be tempted to consider it, but if you are looking to try to make a nice profit in the next two or three years I would avoid.

I imagine there will be some people who bought in right at the low point and already sold again, for 10 to 20% profit.

If they are brilliant at intuition, they may have done the same in the autumn, and missed out a 30% drop in between.

Or they have missed that, but been inspired by it not to stay in for too long on this rise.

I don't know what I'm talking about though, I don't work like this at all.

There will probably also people who spotted the sudden rise in the autumn, told themselves the recovery starts here, jumped in, but now they are showing a loss and now wondering whether the next move is up or down.