Cheap UK share: 1 FTSE 100 stock I can buy and hold till 2025

Other FTSE 100 stocks have shown a smart recovery, but not this cheap UK share. Manika Premsingh believes that is about to change.

| 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.

Many pandemic-affected FTSE 100 stocks have bounced back in the rally since November 2020. Not oil stocks, though. The Royal Dutch Shell (LSE: RDSB) share price is still 35% lower than it was last year at this time. 

I reckon, however, that oil companies like RDSB are in for better times at the stock markets in 2021.

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!

Here are three reasons why:

#1. Global recovery and lockdown lifts 

I think 2021 is going to be a year of recovery for a number of reasons. Vaccinations are underway, marking the beginning of the end to Covid-19. US-China relations could be less hostile this year. And an amicable Brexit deal has been achieved. 

Even though companies’ financials are weak and public debt is ballooning, I reckon growth is about to kick in. Additionally, as lockdowns ease, we will be able to travel more freely. 

Both higher growth and lifting of lockdowns will increase oil demand, which was been hurt in 2020. This is good news for FTSE 100 oil stocks like RDSB.

#2. High liquidity and bargain buys 

The massive quantitative easing that took place to reduce the blow from the pandemic has buoyed equity markets around the world. The UK is no exception. 

With easing unlikely to be withdrawn anytime soon, and investors feeling bullish, I think it’s quite likely that the stock market rally will continue. As share prices get chased up, investors look for still-low-priced stocks to buy as bargains. I think RDSB is one of them. 

#3. Profits and dividend increase for RDSB

Shell’s profits have taken a sharp plunge this year. For the full-year 2020, its profits are one-fourth of what they were last year. But in a poor year for oil prices and demand, I take solace in the fact that the oil biggie has actually managed a profit. 

It would appear that Shell is also optimistic about its prospects, going by the dividend increase it announced earlier this week. After it cut dividends last year in April, it has increased them twice since. There’s a chance that it may do so again. 

RDSB is one of the most stable dividend-payers among FTSE 100 companies. I reckon that unless there’s another severe disruption like Covid-19, we can expect a passive income from the stock to continue. For this reason, I think it’s going to be a draw for income investors this year. It has a 4% yield right now, which isn’t bad.

Risks ahead

The above might make the RDSB story seem all roses and honey from here, but it isn’t. As they say, if it sounds too good to be true, it probably is. 

This cheap UK share comes with its risks. The biggest one is the increasing shift away from fossil fuels to more climate friendly ones. The star of electric vehicles is on the rise, which means lower long-term demand for oil. 

How will oil biggies like RDSB manage this change? That remains to be seen

The takeaway

For that reason, I’d consider buying this cheap UK share and holding it for the next four to five years, and re-assessing evolving trends. Till then, I expect to have seen an increase in my capital and earned a passive income as well from this investment. 

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »