Why might I invest in the shares of Royal Dutch Shell (LSE: RDSB) now? One thing that used to sometimes attract people to the stock was the often-high dividend yield.
Heading for net-zero
But as a dividend-led investment, I’d first demand the same basic qualifying criteria I ask of all my income-paying stocks. Namely, a long record of rising revenue, earnings, cash flow and dividend payments.
But, sadly, Shell fails all those measures and the financial record is erratic. Worst of all, the level of shareholder dividends has plunged since 2019. Therefore, Shell doesn’t make it as a dividend investment for me.
Of course, the firm’s operations are cyclical. And I might try to time the next cyclical up-leg in operations and the share price. However, such a strategy is fraught with difficulty. And with oil and commodity prices already riding high, I can’t shake the feeling that the downside risk is now elevated. That’s why I’d put Shell on the ‘too difficult’ pile as a cyclical trade.
Then there’s the long-term growth opportunity. But Shell is in a state of flux as it aims to transition to the requirements of the new, greener world. Today, the company announced an absolute emissions reduction target of 50% by 2030, compared to 2016 levels. The goal covers “all scope 1 and 2 emissions under Shell’s operational control.”
The directors reckon the announcement is “another strategic milestone” in the company’s journey to becoming a net-zero emissions energy business by 2050.
That sounds progressive, but what’s unclear to me is whether or not Shell can execute its major structural changes profitably. I see the future route of the business as paved with uncertainty. And the recent down-basing of the shareholder dividend has done nothing to reassure me.
Good results this year, so far
However, todays third-quarter results report also contains figures for the first nine months of the year. And compared with a year earlier, the year so far delivered a rise in cash from operations of 33%. Adjusted earnings per share shot up by 191% and net debt declined by 22% to around $57.5bn.
But last year, the world was in the full grip of the pandemic, so comparisons are perhaps a little misleading. It’s interesting to note that production declined by 4%, suggesting the higher oil and commodity prices have been serving the business well this year.
Meanwhile, with the share price near 1,709p, the forward-looking earnings multiple is around 8 for 2022. And the anticipated dividend yield is near 3.9%. But there’s nothing in the figures, or in today’s news releases, to attract me to the stock.
However, I could be wrong in my assessment. After all, Shell’s a big company with big financial resources. And it could go on to invest its way into building a successful transition into a green business fit for the modern world — and to the benefit of shareholders.
Nevertheless, I won’t be one of them.
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Kevin Godbold 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.