Should I buy Shell stock after its 15% dividend boost?

Our writer considers whether investors should consider buying Shell stock after the oil giant’s latest dividend raise and buyback announcement.

| More on:

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.

Two white male workmen working on site at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Shell (LSE: SHEL) made a number of shareholder-friendly announcements yesterday, including plans to distribute more cash via dividends. It’s also maintaining oil output until 2030, as well as cutting businesses that aren’t making enough money. Does this news now make Shell stock a buy?

Cost-cutting

At an investor day in New York on 13 June, chief executive Wael Sawan set out the oil major’s strategy for the next few years. The most noteworthy announcement was that the FTSE 100 firm intends to keep oil production stable until the end of the decade.

This appears to be a shift from its previously announced target to cut output 1%-2% each year for the rest of the decade. However, the company says this target was already met in 2021, following the $9.5bn sale of its interest in an oil project in Permian Basin, Texas. That disposal resulted in a significant drop in the number of barrels of oil it produced.

Management also announced that the company was selling off underperforming assets. This includes a gas project in Australia and its business in Pakistan, where Shell has operated for 75 years. Other chemicals operations and refineries are under review.

One outcome of all this is that the energy giant will return more cash to shareholders. It increased the dividend by 15%, and distributions will be increased to 30%-40% of cash flow from operations through the cycle. This is up from 20%-30% previously.

It also plans to buy back at least $5bn of shares in the second half of this year, and reduce capital spending in 2024 and 2025.

Investing for the future

Additionally, Shell announced it would invest between $10bn and $15bn on low-carbon initiatives from 2023 to 2025. One area it’s leaning into is building more charging stations for electric vehicles (EVs).

This seems to be low-hanging fruit, as it already has 46,000 petrol stations around the world. It can just add chargers in the same prime locations where it’s already selling fuel.

In China, which has the largest and most developed EV market in the world, the company says its EV charging customers go to its charging stations twice as much as its refuelling customers attend petrol stations.

The reasons seems to be that many Chinese residents live in high-rise buildings, not homes where it is possible to have a personal charging setup. So this could be a viable long-term opportunity for the company.

However, I doubt this and other projects (such as biofuels and hydrogen) will ever make the same profits as its existing oil and natural gas operations do. That’s assuming long-term demand for fossil fuels will decline, which most experts are predicting.

Long-term uncertainty

Investors buying the stock today can expect a dividend yield north of 4%. And the predicted payouts over the next couple of years are well covered by record historic earnings. So the near-term income prospects appear rock solid.

Plus, ongoing and future buybacks should support the share price in the medium term.

Longer term however, I’m on the fence. I don’t see how its remaining net-zero target aligns with keeping oil production steady. And with fossil fuel consumption set to decline, its ability to sustain generous dividends and buybacks seems uncertain to me.

On balance then, I’d rather invest in other dividend shares today.

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.

Ben McPoland 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.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing For Beginners

After getting promoted from the FTSE 250, what’s next for Hiscox?

Jon Smith mulls over the latest reshuffle in the FTSE 250 and explains why he feels this top stock could…

Read more »

Investing Articles

Want dividend yields up to 9.9%? Here’s 3 FTSE 100 and FTSE 250 shares to consider

Looking to turbocharge your passive income? These high dividend yield FTSE 100 and FTSE 250 stocks could be just what…

Read more »

Investing Articles

2 shares absolutely crushing the FTSE 100 in 2024!

Not all FTSE 100 stocks are sleepy and meandering. This duo has surged more than four times higher than the…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Growth Shares

The FTSE 100 could hit 9,000 points by year end. Here’s why

Jon Smith talks through some factors that could help to lift the FTSE 100 to a new all-time high and…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d seriously consider buying this UK technology small-cap stock today

Today's positive trading figures and a runway of growth potential ahead make this small-cap stock look attractive to me now.

Read more »

Investing Articles

It’s October! Does this mean UK stocks are going to crash?

Whisper it quietly, but four of the five biggest one-day falls in the FTSE 100 have been in the month…

Read more »

Investing Articles

With new nuclear energy deals in view, Rolls-Royce’s share price looks cheap to me anywhere under £11.48

Rolls-Royce’s share price dipped after a problem on a Cathay Pacific flight but has now bounced back on positive news…

Read more »

Investing Articles

Is the Greggs share price now a screaming buy for me after falling 10% this month?

Harvey Jones watched the Greggs share price climb and climb, but decided it was too expensive for him. Should he…

Read more »