If I invest £10,000 in Shell shares, how much passive income could I receive?

With the company avoiding investing in solar and onshore wind generation, are Shell shares a viable choice for those seeking long-term passive income?

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Investing £10,000 in Shell (LSE:SHEL) at today’s prices would buy 343 shares. With the dividend currently at £1.08 per share, that would return around £370 in income this year.

That’s in the short term. The real question for investors is what the dividend will look like as the world shifts towards renewable energy? I think there are reasons to be positive.

Declining oil

Global oil demand is actually fairly strong at the moment. After a significant – but temporary – decline during the pandemic, oil consumption has largely recovered. 

Source: Statista

Investors should be careful though. There’s a lot of uncertainty about the shift to renewables, but it seems clear that the rise of electric vehicles (EVs) makes it a question of ‘when’ rather than ‘if’. 

The International Energy Agency forecasts that EVs will displace around 12% of current oil demand by 2035. And this is something the likes of Shell will have to deal with.

Shell’s an oil business in a world attempting to transition to other energy sources and that creates a threat to the long-term stability of its dividend. But the company has a plan.

Focus on strength

Shell’s strategy has been to focus on areas other than solar and onshore wind generation. The reason’s simple – the company doesn’t believe it has any competitive advantage here.

It’s tempting to think this approach will ultimately lead to the firm being left behind. But this isn’t as obvious as it might seem, for two main reasons.

First, Shell isn’t entirely avoiding these areas. Its plan is to participate in these areas by partnering with other operators that have advantages it doesn’t.

Second, the company’s focusing on areas where it does have distinctive strengths. These include liquefied natural gas, deepwater energy projects (including offshore wind), and hydrogen.

Dividends

Ok, so what does all of this mean for Shell’s dividend going forward? While there are some clear risks, there’s a lot for investors to feel positive about.

In the medium term, oil demand could well sustain the company’s shareholder returns. EVs are probably the biggest threat, but the rate of adoption’s been slowing.

Beyond that, Shell has opportunities to participate in the shift to renewables. And it has the discipline to avoid mistakes by investing in areas where it has no advantage.

In that spirit, the company’s been buying back its own shares. A lower outstanding share count also helps make the dividend sustainable on a per-share basis. 

A stock to consider buying?

Shell’s approach to onshore wind and solar generation makes it easy to think the business is going to be left behind in the energy transition. But the reality isn’t so simple. 

The company’s aiming to focus on areas where it has distinct advantages and avoid ones where it doesn’t. This isn’t the same thing as not avoiding the space entirely.

If this strategy works, it should allow Shell to provide income to shareholders for a long time. At a price-to-earnings (P/E) ratio of 13, I think it’s worth considering.

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.

Stephen Wright 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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