Here’s how much I’d need to invest in Shell shares to get a £100 monthly income

Harvey Jones is on the hunt for high FTSE 100 dividend income stocks. Today he’s wondering whether to add Shell shares to his portfolio.

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Shell (LSE: SHEL) shares used to offer one of the most reliable sources of dividend income on the entire FTSE 100. That was before the pandemic forced it to axe shareholder payouts for the first time since the war.

The dividend is back, but it’s not quite the monster it used to be. I’d grown used to the oil giant’s shares yielding 5% or 6% a year, but today, they yield just 4.01%. The good news is that the board is committed to increasing dividends every year, and the yield is forecast to hit 4.22% in 2024 and 4.47% in 2025. Which is a bit more like it.

Still a big dividend stock

Any long-term Shell investor who’s disappointed by their dividends can admire their capital gains instead. The Shell share price is up 64.38% over three years, mostly due to the energy shock. The impact is fading but it’s still 12.79% higher over one year.

As with any commodity stock, revenues, profits and share price performance all tend to be cyclical. I aim to counteract this by buying when the sector is out of favour. Today could be an opportunity, with Shell’s shares trading at just 7.7 times earnings.

Where the stock goes next is partly down to the oil price. While demand for energy slowed due to the mild European winter, Brent crude has just crept back above $85 a barrel. Stronger demand from China and falling US crude stockpiles are behind the increase. Where it goes next is anybody’s guess. I won’t even bother making one myself.

I’m after higher yields

If I wanted to generate £100 of income a month – or £1,200 a year – I’d need to buy 1,120 Shell shares. At today’s share price of 2,550p that would cost me £28,560. Now, that’s an awful lot for me to put in a single stock. Sadly, I have only limited funds at my disposal. It would leave my portfolio over exposed to swings in energy price swings, while leaving me little money to load up on my other FTSE 100 favourites.

At most, I would consider investing £5,000 in Shell. Sadly, this would only give me a greatly reduced income of £211 a year. At least it will rise over time. Slowly yes, but steadily.

Shell’s adjusted earnings fell 29% last year to $28.25bn. As well as the falling oil price, it was hit by higher operating expenses, lower refining margins and reduced margins from crude and oil products trading. However, it ended 2023 on a high, with Q4 earnings up 17% year-on-year to $7.31bn.

My portfolio has a Shell-shaped hole in it. Yet despite its attractions, I won’t fill it in the immediate future. Other FTSE 100 stocks will give me income of 6%, 7% or more, and I’ll buy them first to grab a higher income today. I know I should buy Shell, but sadly, I can’t buy everything I want.

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.

Harvey Jones 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.

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