I like to make the most of my Stocks and Shares ISA allowance every year and, for several years now, there’s one company I’ve been buying more than most, namely Royal Dutch Shell (LSE: RDSB).
And after several years of accumulating the position, Shell is now by far the largest holding in my ISA. While I’m a strong advocate of having a diversified portfolio, when it comes to Shell I’m more than happy to be overweight on the company. Today, I’m going to try and explain why I’m still a buyer of the shares.
Slow and steady
When I look at Shell, I see a lumbering dividend giant. The enterprise is one of the largest dividend payers in the UK and constitutes a significant portion of all the dividends paid out by FTSE 100 companies every year.
What’s more, Shell has earned its reputation as a blue-chip income stock over the past few decades. The company has paid a distribution to investors every year since the end of the Second World War, and it doesn’t look as if this trend is going to end anytime soon.
It’s this dependability that gives me the confidence to make Shell the biggest holding in my ISA. In recent years, some analysts have expressed concern that with oil prices falling, the company will have to reduce investor distributions. However, management has acted quickly and aggressively to safeguard the payout, lowering costs across the board so that now the dividend looks safer than ever.
At the same time, Shell is reducing debt and investing billions of dollars in new projects to drive growth in the years ahead.
I am particularly excited about the company’s efforts when it comes to renewable energy. By 2020, management wants to be spending $1bn-$2bn a year developing new energy technologies. This is less than 10% than the company’s annual capital spending budget of $25bn, but it’s still a significant amount.
And it looks as if the group is planning to ramp up spending throughout the 2020s as it establishes itself as a global player in the power supply market. Indeed, the company’s director of gas and new energies recently told the Financial Times the business could become the world’s largest electricity supplier by the 2030s. That’s a big ask, but it shows the scale of Shell’s ambitions.
With $25bn a year to spend and developing its presence in electricity generation and supply around the world, when Shell decides to accelerate its investment plans, growth could explode.
The bottom line
So, that’s why I’ve made Shell the biggest holding in my ISA. Over the next decade or so, this company could become the world’s most massive electricity supplier, which could be a multi-billion dollar opportunity for the group.
Meanwhile, as I wait for the company’s spending plans to yield results, I can sit back and pocket Shell’s 5.8% dividend yield.