Since 30 December 2022, the UK’s elite FTSE 100 index is up a mere 2.3% (excluding cash dividends). Meanwhile, the US S&P 500 index is up 12.7%, again ignoring dividends. Yet some UK stocks have done even better, including Shell (LSE: SHEL) shares.
Shell shares surge and soar
How I regret not buying Shell stock during the depths of 2020/21’s Covid-19 crisis. When lockdowns and social restrictions were introduced across the globe in spring 2020, the oil price collapsed. As a result, the share prices of major oil & gas producers crashed.
On 28 October 2020, Shell’s share price bottomed out at 878.1p, before rising to close at 900p. Anyone buying during these pre-vaccine lows would have made out like bandits.
As I write, Shell shares trade at 2,761p, just 6.5p short of their all-time high of 2,767.5p, hit earlier this afternoon (on Monday, 16 October).
This values the Anglo-Dutch oil & gas supermajor at a whopping £183.4bn, making it the largest member of the FTSE 100. It also means that this group alone accounts for around 9% of the Footsie’s total market value of roughly £2trn. Wow.
The only way is up?
Since autumn 2020, the Shell share price enjoyed strong momentum as the global economy rebounded. Indeed, anyone buying at 2020’s low would have more than tripled their money, with the stock up 314.4% since then. Nice.
However, while this popular and widely held stock is up 21.7% over one year, it has gained just 9.4% over five years (all figures exclude dividends).
Hence, perhaps this stock is not overpriced today, despite hitting record highs? Then again, as one old stock-market saying warns, “trees don’t grow to the sky”, while another adds, “dinosaurs don’t gallop”.
In addition, Shell runs a dirty, polluting business, putting its shares out of favour with ESG (environmental, social, and corporate governance) investors. And climate-change protestors such as Just Stop Oil are waging a PR war against it and other petrochemical giants.
Shell doesn’t look expensive today
At current price levels, this FTSE 100 mega-cap stock trades on a multiple of 8.2 times earnings. This translates into an earnings yield of 12.2% a year, versus 9% for the wider Footsie. But the oil price is notoriously volatile, just as producers’ share prices can be.
What’s more, Shell’s dividend yield trails the wider market at 3.4% a year, versus close to 4% for the FTSE 100. But the good news is that this payout is covered a healthy 3.6 times by earnings, offering plenty of scope for future uplifts.
Summing up, should I buy into Shell today? To be honest, I would like to, but my wife and I already added BP shares to our family portfolio in mid-August. Besides, it was tough enough back then to convince my better half to own one polluting energy company, never mind another.
Therefore, despite its attraction as a potential value stock and dividend Goliath, I won’t be buying Shell shares right now. But I’d like to, not least as a hedge against my ever-rising energy bills!
