2 high-yielding FTSE 100 shares I’d buy before the price of oil rises again

Higher oil prices are boosting energy giants like BP and Shell, but I see them as worthwhile investments even in less volatile times.

| 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 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.

The worrying situation in Iran and the escalating tensions in the Middle East have pushed up oil prices around the world. Investors who bought energy shares over the past few months are sitting on handsome gains, but here at the Motley Fool, we like to take a longer-term view of investing 

It’s worth noting that the price of oil has only shifted along with investor sentiment but for the moment, the supply-demand dynamics of the actual commodity remain unchanged. This means the price could escalate much higher if the supply chain is disrupted or certain countries start hoarding oil strategically. 

In this scenario, I believe two FTSE 100 energy companies could be more in demand, but I like them now for their high yields and determination to become more efficient businesses. 

Royal Dutch 

Royal Dutch Shell (LSE: RDSB) shares have gained nearly 3.9% over the past five days in response to the current situation, but I have to say that I feel it deserves to trade higher anyway. The oil giant was clearly trading at a discount not too long ago. Now the price has caught up to the behemoth’s long-term fundamentals, while the dividend yield remains impressively high at 6.2%. 

After a year of selling off assets in the Middle East and tightening its belt in anticipation of lower oil consumption, Shell is now a much more efficient energy producer and distributor. My Fool colleague G A Chester forecast 25% earnings per share growth and a price-to-earnings growth (PEG) ratio of 0.4 for 2020. 

However, he made his predictions in mid-2019. Since then, the price of oil has moved higher while the number of Shell shares outstanding has dropped as a result of buybacks. The company’s cash flow for 2020 could be higher than anticipated. In other words, the shares are more valuable now, making it the perfect time to add this heavyweight to your watch list.  


BP (LSE: BP) is another key beneficiary of higher oil prices. The shares are up 6.4% since the start of the year, while the dividend yield remains attractively high at around 6.5%.

My Fool colleague Paul Summers estimated a dividend of 32p for 2020, which he says is covered 1.4 times by estimated earnings for the year. However, he made those predictions when the price of Brent Crude was hovering around $64, while the current price is nearly $70. 

In other words, BP’s growth and dividend coverage could be better than expected, making the share an undervalued income opportunity for yield-hungry and risk-averse investors like me. 

What I like about BP, beyond its robust dividend and attractive valuation, is the fact that it is also transitioning to a more diverse business model by adding renewable energy to the mix. The company is already one of the largest natural gas suppliers in the world and has deployed hundreds of millions into acquiring wind farms across the US. 

Foolish takeaway

Oil and gas giants like Royal Dutch Shell and BP are in an interesting position in 2020. They’ve spent years reducing their costs and making their operations efficient and when the oil price rises, they benefit. We all hope the conflict with Iran can be resolved soon and even if the oil price dips again, I still see these two firms as worthy investments.

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.

VisheshR has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how I’d aim for a ton of passive income from £20k in an ISA

To get the best passive income from an ISA, I think we need to balance risk with the potential rewards.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

2 FTSE 100 stocks I’d buy as the blue-chip index hits record highs

This Fool takes a look at a pair of quality FTSE 100 stocks that appear well-positioned for future gains, despite…

Read more »

Satellite on planet background
Small-Cap Shares

Here’s why AIM stock Filtronic is up 44% today

The share price of AIM stock Filtronic has surged on the back of some big news in relation to its…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

At a record high, there can still be bargain FTSE 100 shares to buy!

The FTSE 100 closed at a new all-time high this week. Our writer explains why there might still be bargain…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

After profits plunge 28%, should investors consider buying Lloyds shares?

Lloyds has seen its shares wobble following the release of its latest results. But is this a chance for investors…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Something’s changed in a good way for Reckitt in Q1, and the share price may be about to take off

With the Reckitt share price near 4,475p, is this a no-brainer stock? This long-time Fool takes a closer look at…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This new boost in assets might just get the abrdn share price moving again

The abrdn share price has lost half its value in the past five years. But with investor confidence returning, are…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

As revenues rise 8%, is the Croda International share price set to bounce back?

The latest update from Croda International indicates that sales are starting to recover from the end of 2023, so is…

Read more »