The Motley Fool

The Shell share price is climbing. Should I buy now?

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.

Piggy bank group pastel color background
Image source: Getty Images

The Shell (LSE: RDSB) share price is climbing today after the company unveiled plans to increase shareholder returns

The oil price recently hit a three-year high, and this has delivered the group an unexpected windfall. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

According to today’s release, the higher oil price and improved macroeconomic outlook mean the company will accelerate its shareholder return plan. It’s looking to return 20% to 30% of free cash flow from operations to investors with share buybacks or dividends. 

Management also declared that the company would “retire” its previous target of higher returns once net debt fell below $65bn. 

The firm says it will provide further updates on shareholder returns alongside its second-quarter results. 

Shell share price bounce 

This is excellent news for investors. Only this time last year, the company was warning of lower returns in the future and was forced to slash its dividend, a move that sent shockwaves through the City. 

Now it looks as if Shell is back in business. Rising demand for oil and gas, as well as chemical products, means the company’s profits are rising, providing the group with capital to strengthen its balance sheet and reinvest in future growth. 

What’s more, it appears as if the death of oil and gas has been vastly overstated. Oil demand took a hit last year, but reduced output more than offset lower demand. As such, oil prices have rebounded. There’s even some speculation the price of the black gold could return to $100 a barrel. If it does, Shell could be in the money. 

All of the above factors suggest the outlook for the Shell share price is improving. However, I’m in no rush to buy the stock, despite its progress. 

Challenges ahead

There are a couple of reasons why. First of all, all there’s no guarantee the oil price will continue to rise, and Shell’s profits will continue to grow.

Oil prices are highly volatile and they can fall just as fast as they rise. Indeed, in the first half of last year, at one point, the price of oil fell below zero. 

At the same time, I think Shell lags behind its peers when it comes to the energy transition. The company has outlined plans to increase spending on renewable energy projects, but oil and gas output will generate most of its revenues and profits for years to come. 

I think this could leave the group overexposed to a sector that’s seeing increasing costs and poor fundamentals. 

As such, while today’s update has helped send the Shell share price higher, I wouldn’t buy the stock today. I think the company faces significant risks and challenges in the years ahead, and there’s no telling how it will navigate the environment. The business may also start to struggle again if the price of oil slides. 

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Rupert Hargreaves 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.