Despite its strong operational record, oil major Shell (LSE:SHEL) has seen its share price drop 10.6% over the last year, to £25.05 per share. It goes to show that even the best-run companies can struggle when oil price volatility picks up.
Over a 10-year basis, however, the FTSE 100 company has been far more resilient. Even factoring in the pandemic period when oil demand collapsed, Shell’s share price has risen 17.3% in value. This means someone who invested £10,000 back then would have seen the value of their holdings rise to £11,730 today.
When adding in dividend income, the return gets even better. With dividends totalling £11.13 per share in that time, the total return on a £10k investment (with dividends reinvested) would be £17,715, or 77.2%.
That’s not a bad return considering severe oil price volatility in that time. It’s also within striking distance of the FTSE 100 index’s corresponding return of 85.1%.
But could returns on Shell shares improve looking ahead? And should I buy the oil giant for my portfolio?
Price forecasts
Broker forecasts don’t stretch out to the next 10 years unfortunately. But they do cover the next 12 months, and largely speaking they paint a bright picture.
The 18 analysts with ratings on Shell shares have created an average price target just shy of £31 per share. That’s up around a quarter from current levels.
It’s important to stress, though, that opinions are mixed among these analysts. One broker thinks the shares will slide back below £24 over the next year, while another expects Shell’s share price to barge through $40.
Growing dangers
But how robust are these estimates? Well, based on forecast-topping trading numbers last Friday (2 May), some analysts could be growing more confident in their numbers.
For the first quarter, Shell announced adjusted earnings of $5.6bn, beating estimates by around half a billion dollars. Sure, this was down 27.9% year on year, but strong capital efficiency helped offset the impact of sinking crude prices.
Furthermore, those quarter one numbers underlined the resilience that integrated providers enjoy versus more specialised firms. Earnings stability can be greater, as the different segments of their business (exploration, production, refining, and distribution) can offset problems in one area.
Yet as the company’s recent performance shows, operational excellence doesn’t stop profits sinking when oil prices reverse. The danger for Shell (and its share price) is that Brent crude prices — which plunged to four-year troughs below $60 per barrel recently — could continue to slide as the global economy cools.
Energy prices are also in danger as countries from inside and outside the OPEC+ grouping ratchet up oil production.
Should I buy Shell shares?
On balance, then, I’m not tempted to buy Shell shares right now. Even predictions of more market-beating dividends (yields are around 4.5%-5% for the next three years) aren’t enough to encourage me to open a position.
With the rise of renewable energy posing a substantial long-term threat as well, I’d rather buy other UK and US shares for my portfolio.
