Is Royal Dutch Shell Plc The Best Dividend Share In The FTSE 100?

Royal Dutch Shell Plc (LON:RDSB) has not issued a dividend cut since the end of the Second World War. Does that make the oil giant the best blue-chip income share?

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History

Today, Royal Dutch Shell (LSE: RSDB)(NYSE: RDS-B.US) employs more than 80,000 staff worldwide. The company has over 100 years of history. Shell is a true titan share.

For investors, the company’s name has become synonymous with financial strength, dependability and big, reliable dividends.

Dividends past

Shell pays its shareholders four times a year in quarterly dividends. These payments are announced in dollars. However, anyone owning the ‘B’ class shares (ticker: RDSB) will be paid in sterling by default.

In 2011, Shell paid out more cash in dividends than any other UK-listed company. The company fell to second place in 2012 when Vodafone declared a large, special dividend. Shell looks set to regain the crown this year.

In dollar terms, the Shell dividend has increased by 19% in the last five years. That equates to an average annual increase of 3.5%. Although that may beat general measures of inflation, income investors typically expect a higher rate of increase.

Last year, Shell paid $1.72 of dividends. At today’s share price, that equates to a yield of 4.9%.

Dividends future

If Shell pays four equally sized dividends for 2013, the total payout for this year will be $1.80 — a 4.7% increase on 2012.

However, a distribution of just $1.82 is forecast for 2014, a rise of just 1% on my 2013 expectation.

Of more concern is Shell’s ability to pay dividends from the profits that the company is generating. Back in 2007, Shell paid $1.44 of dividends from $4.74 of earnings — the dividend was covered 3.5 times. Forecasts are for cover of 2.0 times this year.

Surprisingly for Shell, analysts earnings forecasts have become unreliable. This time last year, the consensus expectation was for 2013 EPS of $4.47. Today, that figure is just $3.57. Unreliable earnings are never good for a share’s rating. The change in perceptions may go some way to explaining Shell’s forecast P/E of 9.8 versus 14.6 for the wider market.

Shell vs the rest

According to my data, six FTSE 100 shares are forecast to yield more than Shell this year. Shell has better dividend cover than all of these but one. It can be argued whether Shell is the best income stock in the FTSE 100 but it is certainly a contender.

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.

> David does not own shares in any of the companies mentioned.

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