Should I buy more of the Royal Dutch Shell stock now?

The Shell share price has risen some 27% in the last six months alone. Is it too late for Manika Premsingh to add to her holdings 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.

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.

2021 has been a good for the FTSE 100 oil biggie Royal Dutch Shell (LSE: RDSB). The stock’s ascent had started soon after the stock market rally started in last November. It was further bolstered by the increase in oil prices earlier this year. And as the economy recovery gathered pace, it has only strengthened further. In the last six months alone, its share price has risen some 27%.

Optimism on the Shell share price

And I do not think that this is the end of its climb either. Consider this. The stock is presently trading at around £17 levels, which is still 500p lower than its pre-pandemic value. I get that there is still some uncertainty around the stock. The pandemic keeps rearing its head, what with the new Omicron variant! And travel is most likely to be impacted if the situation gets out of hand again. This, naturally, will impact oil prices negatively. However, I think it is fair to say that the likelihood of going back to 2020 style lockdowns is rather limited. We are more likely to make progress. This in turn means that the Shell share price could keep rising. 

Indeed, analysts seem to believe that. Even the most pessimistic analyst forecasts expect a small increase over the next 12 months, while the most optimistic ones expect it to more than double! And I reckon some increase at least is possible if it continues to turn profits. It has been profitable for the first nine months of its current financial year, which suggests to me that it could end the year on a high note as well. 

Relative price and dividends

However, there are downsides to the stock too. The one ratio I always consider when deciding whether or not to buy a stock is the price-to-earnings (P/E) ratio, which allows an easy comparison across all other potential purchases for me. Shell’s P/E is around 38 times right now, which I think is high compared to 17 times for the FTSE 100 as a whole.

Its dividend yield could be better too. It is presently 3.7%, which is slightly above the average FTSE 100 yield. However, it might not cut it for me next year. Inflation in the UK is expected to average 4% next year. And that means my real passive return from Shell would actually be negative if it does not increase its dividends from their present levels. Also, its peer BP already has a higher yield of 4.6%, so I would much rather buy that stock for a passive income. 

My takeaway

On the whole, though, I like the Shell stock. It could be one great earnings release away from a far more tempered P/E ratio. If its earnings rise significantly, with the price at the same level, it follows that its P/E will decline. Also, bigger dividends might just be one announcement away. And I think it is probably, considering the likely profits for oil biggies this year. I think I would buy more shares now for my portfolio.

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.

Manika Premsingh owns shares of Royal Dutch Shell B. 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

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »

Investing Articles

Dividend shares: 1 FTSE 100 stock to consider buying for chunky shareholder income

This company’s ‘clean’ dividend record looks attractive to me and I’d consider buying some of the shares to hold long…

Read more »

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »