Since the height of the pandemic, Shell (LSE:SHEL) shares have provided shareholders with some extraordinary returns. The big question for many investors has been, how long can this growth continue?
So let’s take a closer look at Shell stock and explore what’s next for the oil & gas giant.
More growth
Despite the recent share price volatility engendered by fluctuations in the oil price, Shell stock is up 12% over 12 months. So if I’d invested £1,000 in the company a year ago, today I’d have £1,120. That’s not bad at all.
Plus I’d have received dividends during that time. The dividend yield currently sits at 3.5%, but a year ago it was closer to 4%. My £1,000 would have generated around £40 in returns.
So my total returns for the investment would have been around 16% — that’s around double the average investors can expect from the FTSE 100.
Performance remains strong
In an update on Thursday ahead of Q1 results in May, Shell said it expects to report higher liquefied natural gas (LNG) output (7-7.4m tonnes) quarter on quarter. That’s after outages at its Australian plants last year as well as stable earnings from LNG trading.
There were positive suggestions elsewhere. The company said its oil products division would see boosted earnings through a “significantly higher” trading performance. Renewables is expected to contribute $100m-$700m in adjusted earnings, compared with $300m in the last quarter of 2022. That’s a wide range and leaves a lot that’s still uncertain. But at the top end of the range, it could be very positive
Investing in a volatile market
Shell can be a volatile stock to invest in. Often this has very little to do with operational performance but economic data, geopolitics, OPEC+ commentaries, and, as a result of the aforementioned, changes in the oil price.
This volatility, and the often cyclical nature of the energy market, is why oil companies don’t trade with particularly high valuations. Shell trades for around 7.5 times earnings. That’s just above half the index average.
But, as noted, there can be good reason for this. Shell’s performance is heavily impacted by the prices it can achieve for the oil, gas, energy and petroleum products it produces. When natural gas and oil prices go up or down, we see almost immediate changes in the share price.
After the recent OPEC+ cut, some analysts started talking about oil exceeding $100 a barrel in the near future. But several big banks have actually cut their price forecasts on slower economic growth around the world, and even a recession in the US.
Personally, my preference is to try and avoid more volatility than I need to. I’m fairly bullish on the long-term outlook for hydrocarbons, but I wouldn’t buy hydrocarbon stocks now as oil appears particularly volatile at the moment.
All it would take is some negative US economic data to push energy prices down. As such, I think there could be better entry points later in the year if I stick by my thesis on long-term strength in hydrocarbons.
