Royal Dutch Shell (LSE: RDSB) shares were one of my first investments. The stock has been a feature of my portfolio for more than a decade-and-a-half.
However, although I’ve recommended buying the shares many times over the past few years, I recently decided to sell all of my holdings in the company.
Selling Royal Dutch Shell shares
I decided to divest my holdings of the oil major for a couple of reasons. First of all, I think the group has lost its way over the past few years.
Since 2014, when the oil price plunged from around $100 a barrel to around $40, the company has been on the back foot. It’s tried to remain relevant by cutting costs and refocusing its business model, but these efforts have fallen short.
Even after acquiring peer BG, Shell hasn’t regained its former glory. Revenues fell by $80bn between 2014 and 2019. Analysts expect this trend to continue. Revenues could slump by a further $80bn between 2019 and 2021, according to the City.
These numbers suggest to me the company is shrinking. That means it makes sense that Shell shares should be worth much less today than in 2014.
The second reason I decided to sell is the energy transition. While I’m confident oil & gas will remain two of the world’s dominant energy sources for at least the next few years, the green energy revolution is gaining speed. Shell is trying to keep up, but it seems to be struggling.
Last year, the company wrote down the value of its hydrocarbon assets by $22bn. That seemed to me to be an admission from management that some parts of the group may not have much of a future. In total, fossil fuels still make up around 90% of Shell’s capital spending. That tells me the business has a lot of work to do to remain relevant as the world transitions to clean energy.
Shrinking business
Put simply, the corporation has been shrinking over the past five years, and it’s going to need to spend billions in the medium term to stop revenues falling further. I think this means the group will continue to shrink. And Shell shares will continue to languish over the next few years.
Based on those factors, I decided to sell the stock. While the company’s current dividend yield of around 3.5% is attractive in the current interest rate environment, I don’t think it’s going to be enough to make up for the uphill struggle the group could face in the years ahead.
I’d much rather own a business with a better growth outlook, which could support a growing dividend yield. A good option to Shell shares may be BP, which has spent more time in the past few years investing in renewables. I reckon that could make the business a better proposition for the long term.
