I think it could be time to buy the Shell share price’s 10% dividend yield

The Shell share price currently supports a dividend yield of 10%, and it looks as if this distribution is here to stay for the foreseeable future.

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 Royal Dutch Shell (LSE: RDSB) share price currently supports a dividend yield of 10%. This looks extremely attractive in the current interest rate environment.

However, over the past few weeks, blue-chip dividend stocks have been lining up to announce dividend cuts, as they try and conserve cash to cope with the coronavirus crisis. These actions have sparked concern that Shell could be next to chop its payout.

Luckily, the company has been quick to take action to safeguard its payment. With this being the case, it looks as if now could be the time to buy the Shell share price for its 10% dividend.

Shell share price: dividend security

Last week, the group informed the market it has signed a new multi-billion-dollar credit facility, to the tune of $12bn. It was part of management’s actions to bolster the balance sheet and support the Shell share price. 

The new facility came hot off the heels of another $10bn line of financing agreed in December. Together, as well as other resources, these credit lines give the group more than $40bn of cash to weather the current storm.

The company has also announced actions to reduce capital spending, falling to $20bn for 2020. Initial projections suggested the group was going to spend as much as $25bn this year on capital projects. Management is also looking to reduce overall operating costs by $3bn to $4bn this year.

These actions should help free up more cash for the group. If the oil price recovers, management’s efforts to reduce costs should also help the business recover faster than its peers.

Further, the group now has the firepower to acquire struggling peers. In the last oil price crash five years ago, Shell did just that. It acquired liquefied natural gas (LNG) producer BG Group at the bottom of the cycle. The deal made the oil major one of the largest LNG producers overnight. These supply contracts reduced the business’s dependence on oil, which should help it move through this downturn in one piece. 

Acquisitions could also help the Shell share price recover faster when the oil market rebounds. 

City analysts believe all of the above will be enough to ensure Shell’s dividend is safe for the next 12 months. That’s based on current oil prices of around $30 per barrel.

If oil prices remain below $30 for longer than 12 months, then the company might have to make some tough decisions. However, with most economists predicting a recovery in economic activity towards the end of 2020, it seems likely the Shell share price will not disappoint investors over the next 12-24 months.

Even if the downturn does last longer than expected, Shell has lots of options. The company can cut costs further, or turn to script dividend payments, as it did in the last oil price downturn. With these payments, the business issues shares instead of cash. This allows the business to maintain its dividend while reducing cash outflows.

All in all, it looks as if the company has the financial firepower to survive the current downturn. That’s why I think it could be time to buy the Shell share price, and its 10% dividend yield, today.

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.

Rupert Hargreaves owns shares in Royal Dutch Shell. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »