Buy BP plc And Royal Dutch Shell Plc Now Before It’s Too Late?

Is now the perfect time to buy BP plc (LON: BP) and Royal Dutch Shell Plc (LON: RDSB)?

| More on:

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 a sector is down in the dumps and investors are eyeing up a possible recovery, the big question is always about the timing — are we at the bottom yet and is it time to pile in?

I don’t subscribe to that approach myself, believing that getting the right company at the right valuation is far more important (and more achievable) than getting the timing right. But having said that, when it comes to the big FTSE 100 oil companies, I think the timing might be just about perfect now.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Talks between OPEC members about possibly controlling the oversupply of oil have restored a bit of confidence, and Brent Crude has perked up to $35.25 a barrel — still not great, but better than the $28-29 depths it was plumbing in mid-January.

Bob’s dividends

In turn, BP (LSE: BP) shares have gained  a little, picking up 13% since 11 February to 351p. BP boss Bob Dudley famously opined in January 2015 that we could be in for low oil prices for up to three years — and that was back when $50 was being seen as low, so I think he’s not going to be far off the mark.

Mr Dudley really wasn’t too worried, because giants like BP are in a financial position to hold out for lengthy periods like this. The firm has offloaded some assets and has shelved production at some of its more costly operations, but unlike some others it’s not highly geared and isn’t close to facing a debt crisis — in fact, BP would have very little problem if it needed to go for a bond offering to raise cash.

And BP has kept its dividend payment going. Shareholders enjoyed a massive 7.9% yield in 2015, and there’s 7.4% forecast for the current year — and the company has reiterated its commitment to keep the payments going.

Shell stretched?

Royal Dutch Shell (LSE: RDSB) is in a very similar position, though its share price has been more volatile than BP’s. Shell shares slumped to a low of 1,278p on 20 January, but since then we’ve seen a 27% recovery to today’s 1,617p.

Shell has also kept its dividends going, and there’s a 7.6% yield forecast for 2016. Though Shell has been less vociferous than BP in its dividend promises, the fact that it’s keeping the 2015 payout pegged at 188 cents per share has reassured the markets that a cut is not likely to be on the agenda in the shorter term. And though I think there’s a reasonable chance we will see a reduction in the medium term, the resulting lower yield should still be a pretty attractive one.

Shell does have the integration of newly-acquired BG Group to deal with, and it’s arguable that it overpaid on the deal, which was arranged when oil was significantly higher. We’ve seen a lot of cost cutting too, and the latest news is of thousands more job cuts to come.

Boot-filling time?

Of course, we could still see chaos at OPEC, the oil taps carrying on gushing, and the black stuff falling as low as the $20 that some of the growliest bears are fearing. But the longer term upside for BP and Shell just has to be excellent, and with income investors increasingly being drawn in by these high yields, I’m bullish about the two of them. Those looking to invest in the oil business today have possibly never had it so good.

More on Investing Articles

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

2 undervalued passive income stocks I’d buy today with £1,000

Falling stock prices are pushing up dividend yields. As a result, our author is looking for undervalued passive income stocks…

Read more »

Close-up of British bank notes
Investing Articles

2 cheap dividend shares I’d buy in a heartbeat

Our writer picks a pair of FTSE 100 dividend shares he would consider for his portfolio, that he thinks look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

With £500, I’d use the Warren Buffett method to find cheap shares

The legendary investor Warren Buffett has become a billionaire by following some key investment principles. Our writer explains why he…

Read more »

Man in a clothing store in a medical mask because of a coronovirus.
Investing Articles

Down 81%, are boohoo shares set for an explosive comeback?

boohoo shares have been falling rapidly. But could interest from a billion-dollar hedge fund cause a turnaround in 2022?

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

The Tullow Oil (TLW) share price jumps after losses! Is now the time to buy?

The Tullow Oil (TLW) share price ticked upwards on Thursday morning after falling nearly 30% over the last month. So,…

Read more »

Female analyst sat at desk looking at pie charts on paper
Investing Articles

Is the Lloyds share price about to dip below 40p?

The Lloyds share price has been trading below 50p for the better part of the year. But could the stock…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

2 beaten-down FTSE 250 shares I’m buying and holding for the long term

Andrew Woods explains why he's adding two FTSE 250 shares to his portfolio in the middle of a market sell-off.

Read more »

Female analyst sat at desk looking at pie charts on paper
Investing Articles

The Legal & General (LGEN) share price jumps 3%! Am I too late to buy?

The Legal & General (LGEN) share price soared in early trading on Thursday as the company registered a good start…

Read more »