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3 Great Reasons Why Royal Dutch Shell plc Is Set To Take Off

Today I am looking at why I believe Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) is an excellent oil stock for those seeking to capitalise on rising black gold prices.

Expect earnings to gush over the long term

Royal Dutch Shell announced that earnings on a current cost of supplies basis fell to $4.6bn in April-June, a 20% annual drop. The company suffered considerably from rising costs and exploration charges, adverse exchange rate movements and operational problems in Nigeria.

Despite these current problems, I believe that the inevitability of growing energy demand across the globe should underpin solid earnings growth on a long-term time horizon. And in the meantime, the likely continuation of political upheaval in the oil-producing regions of the Middle East should keep oil prices ticking higher in the meantime.

As well, the oil firm is also undergoing severe restructuring to boost earnings, and plans to add to the $21bn worth of non-core divestments it has already made in the past three years. And with a commitment to hiking capex for its key assets — Royal Dutch Shell spent $9bn in April-June versus $7bn in the same 2012 period — the firm is in great shape for future growth.

A dependable selection for sizeable dividends

In my opinion, Royal Dutch Shell is a solid pick for investors seeking access to chunky dividend yields, even if earnings come under pressure further down the line. Indeed, the firm shrugged off a gargantuan 69% earnings decline back in 2009 to punched a 5% increase in the full-year dividend to 168 US cents.

The firm kept total payouts on hold for the following two years, but 2012’s increase to 172 cents should herald a turning point in the company getting its previously-progressive dividend policy back on track.

Indeed, City number crunchers expect Royal Dutch Shell to produce dividends of 186 US cents and 191 US cents for 2013 and 2014 respectively. With the oil giant carrying yields of 5.4% and 5.6% for this year and next, far outstripping the 3.2% FTSE 100 forward average, I reckon that Royal Dutch Shell is a particularly juicy selection for income investors.

Oil returns from your investment portfolio

Shares in Royal Dutch Shell have yet to meaningfully recover after August’s update shook investor confidence in the firm, and the stock has shed 7% since last month’s announcement. Based on current City estimates this leaves the oil monolith trading on a P/E rating for 8.6 and 8.1 for 2013 and 2014 respectively, well within bargain territory below 10 and compared with a forward reading of 21.2 for the entire oil and gas producers sector.

So in my opinion, Royal Dutch Shell offers fantastic earnings potential at a great price. But whether or not you agree with me, and are looking for other top blue-chip selections with blistering growth potential, I strongly recommend that you take a look at this special report which identifies a sterling stock pick in the publishing sector.

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> Royston does not own shares in Royal Dutch Shell.