Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) to ascertain if its share price can return to 2,478p.
Initial catalyst
Of course, before we can establish whether or not Shell can return to 2,478p, we need to figure out what caused it to get there in the first place. It would appear that Shell reached this high amid a broader FTSE 100 rally at the end of 2011. In addition, it seems as if investors were drawn to the company seeking stability after the market volatility brought about by the US debt ceiling crisis.
Still, Shell’s share price retreated from these highs following a number of disappointing trading updates and the company has yet to prove to investors that it can turn things around.
But can Shell return to its former glory?
Nevertheless, I feel that Shell has all the foundations in place to make another run at its all-time of 2,478p per share. Indeed, Shell is currently in the process of streamlining its operations, culling expensive developments with low margins, which have historically held the company back, in favour of more lucrative projects.
In particular, Shell has started up a series of large oil & gas production projects within the last few months, including deep water drilling developments and longer-term plays such as Iraq. These expansions should continue to add to Shell’s bottom line.
In addition, Shell’s full-year 2013 dividend payout is slated to be 10% higher than the level paid out during 2011. This dividend growth makes the company even more attractive as a dividend stalwart — the reason investors drove the company’s share price to its all-time high in the first place.
Having said all of that, due to the fact that Shell is restructuring its operations, earnings have been on the decline during the past few years. Moreover, City analysts expect Shell’s 2013 earnings per share to come in around 18% lower than the figure reported for 2012. However, analysts expect earnings to expand 10% during 2014.
Still, as mentioned above, Shell’s dividend payout continues to expand and is covered twice by earnings per share.
Foolish summary
All in all, Shell has made some mistakes during the past few years and as a result the company’s share price has suffered. However, the company’s dividend yield is still one of the largest and most secure in the FTSE 100, implying that investors will be drawn to the company in times of uncertainty.
So overall, I feel that Royal Dutch Shell can return to 2,478p.
