Shares in Shell (LSE: RDSB) (NYSE: RDS-B.US) have disappointed, on a relative basis, over the last five years. While the FTSE 100 has posted gains of 87%, Shell has lagged behind, managing just 47% since the bull market began in March 2009. However, does this now mean that Shell is more or less attractive going forward? Is it still a super income stock?
High Yield
Shell’s yield of 4.7% certainly allows it to be classed as a high-yielding share. While the FTSE 100 yields just 3.5%, Shell’s yield is considerably ahead of this and is also, crucially, much higher than inflation and the interest rate on a typical high street savings account.
However, where Shell really comes into its own as an income play is the consistency with which it makes its dividend payments. While the world economy has stuttered over the last five years and the price of oil has been highly volatile, Shell has not cut its dividend payments and is forecast to increase them at an annualised rate of 3.7% over the next two years.
Although some of its FTSE 100 peers can boast higher dividend growth rate forecasts, Shell still offers a consistency that few companies who rely upon the price of a commodity can manage.
Payout Ratio
In addition, Shell appears to have the scope to pay out a greater proportion of earnings as a dividend. For instance, Shell is forecast to pay out just 55% of 2014’s net income as a dividend. Given that Shell is a very mature company operating in a mature industry, it could be argued that this proportion could be considerably higher. Certainly, Shell needs to reinvest in its business and plough profit back in via capital expenditure, but it could achieve this aim and be more generous with payouts going forward.
Looking Ahead
Trading a on a price to earnings (P/E) ratio of just 11, Shell appears to offer good value for money — especially while the FTSE 100 has a P/E of around 13.5. Therefore, as a result of being good value for money, having a growing, stable dividend as well as the potential to pay out a greater proportion of earnings to shareholders, Shell remains a super income stock.
