There’s a growing chorus of voices suggesting an approaching bull market for stocks. And I think Shell (LSE: SHEL) shares may be worth considering as an investment now.
Big Tech stocks in the US have been shooting higher this year. And in the UK, many popular stocks have done well too. I’m thinking of names such as Greggs, J Sainsbury, Barratt Developments and others.
But there have been weak stocks as well, such as Johnson Matthey, British American Tobacco, British Land and more.
A broader bull market coming?
Those market moves might have been driven by factors specific to each underlying business. But a US fund manager is among the latest investors to express a belief that a broader bull market is coming.
CNBC reported recently that Freddie Lait of Latitude Investment Management thinks we’re entering a “very different cycle for the next two-to-five years”. And the next leg of the bull market will be much broader than we’ve seen so far with many more stocks involved.
Part of the driver, according to Lait, will be the easing of interest rates when price inflation is back under control.
Lait is focused on the US markets, but I think there’s decent read-across for the UK stock market. And after such a long period of volatility stretching back to before the pandemic arrived, it seems almost inevitable that a bull market will arrive soon. Although such outcomes are never certain.
Nevertheless, it’s a good time to invest in shares and Shell is worthy of consideration for a diversified portfolio.
The full-year report for 2022 shows that the energy giant earns most of its profits from upstream oil & gas and integrated gas operations. The company has a sizeable renewables and energy solutions business, but those operations are still loss-making.
Volatile commodity prices
So Shell depends mainly on oil and gas for its earnings. And one of the risks is the volatility of selling prices. For example, when prices were elevated in the fourth quarter of last year, the company recorded higher earnings than it has done for the first quarter of 2023.
Nevertheless, it’s difficult to imagine oil and gas prices dropping again to a level that prevents Shell from turning a profit. Although the lockdowns during the pandemic did just that. But the effect was temporary and brief.
However, since 2020, the stream of shareholder dividends coming from the business has been smaller. But from the low in the pandemic year, annual increases have been ramping up at double-digit percentages. And beyond that, City analysts expect an increase in the dividend of about 8.5% in 2024.
With the share price near 2,403p, the forward-looking dividend yield is around 4.7% for next year. And that strikes me as a worthwhile level of income for investors to collect.
It seems likely Shell will always display a volatile share price over multi-year periods because of the inherent cyclicality in its operations. But the stock could nevertheless provide useful diversification in a portfolio. And may be worth considering now. Especially if commentators such as Lait prove to be correct about an approaching general bull market.
