Is Royal Dutch Shell Plc A Super Income Stock?

Does Royal Dutch Shell Plc (LON: RDSB) have the right credentials to be classed as a very attractive income play?

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.

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.

royal dutch shellHowever, 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.

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.

Peter owns shares in Shell.

More on Investing Articles

Investing Articles

No savings? I’d use the Warren Buffett method to target big passive income

This Fool looks at a couple of key elements of Warren Buffett's investing philosophy that he thinks can help him…

Read more »

Investing Articles

This FTSE 100 hidden gem is quietly taking things to the next level

After making it to the FTSE 100 index last year, Howden Joinery Group looks to be setting its sights on…

Read more »

Investing Articles

A £20k Stocks and Shares ISA put into a FTSE 250 tracker 10 years ago could be worth this much now

The idea of a Stocks and Shares ISA can scare a lot of people away. But here's a way to…

Read more »

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

What next for the Lloyds share price, after a 25% climb in 2024?

First-half results didn't do much to help the Lloyds Bank share price. What might the rest of the year and…

Read more »

Investing Articles

I’ve got my eye on this FTSE 250 company

The FTSE 250's full of opportunities for investors willing to do the search legwork, and I think I've found one…

Read more »

Investing Articles

This FTSE 250 stock has smashed Nvidia shares in 2024. Is it still worth me buying?

Flying under most investors' radars, this FTSE 250 stock has even outperformed the US chip maker year-to-date. Where will its…

Read more »

Investing Articles

£11k stashed away? I’d use it to target a £1,173 monthly passive income starting now

Harvey Jones reckons dividend-paying FTSE 100 shares are a great way to build a long-term passive income with minimal effort.

Read more »

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

10% dividend increase! Is IMI one of the best stocks to buy in the FTSE 100 index?

To me, this firm's multi-year record of well-balanced progress makes the FTSE 100 stock one of the most attractive in…

Read more »