Should I Buy Royal Dutch Shell Plc Or BP plc?

Ask a man on the street to name a FTSE 100 company and you can bet that Shell (LSE: RDSB) (NYSE: RDS-B.US) and BP (LSE: BP) (NYSE: BP.US) will be among the first names suggested. Each company has immense history and a massive global presence. Very few British drivers will have failed to purchase from either company. Their petrol stations are so ubiquitous that they go almost unnoticed.

Both companies have long been considered a great way of gaining exposure to the energy industry while being paid big dividends. As a result, each is a cornerstone many dividend portfolios.


I’ve never owned Shell. That’s probably because I like to buy shares when investors are rushing to give them away. Shell is just too reliable for investors to dump in a market panic. In my entire investing lifetime, the shares have never struck me as an opportunity for a short-term profit. However, their credentials as a long-term store of wealth have never been in question.

Shell is famous for not cutting its shareholder dividend. This year, Shell is expected to pay out more cash than any other company in the FTSE 100 — that would be the fourth time in the last five years that Shell has been the biggest payer.

Long-term holders that have been reinvesting their dividends back into Shell stock have been rewarded. This strategy delivered a 53% wealth increase in less than seven years.


By contrast, BP has disappointed recently. The Gulf of Mexico disaster has cost the company billions and the dividend payout is yet to recover to the level it was in 2009.

However, a new arrangement with Russian oil company Rosneft is now in place. This will help secure BP’s long-term profits.

BP shares are trading today at a sixth month low. This decline has pushed the anticipated dividend on the shares to 5.2%. The P/E ratio, using 2013 forecasts, is just 8.8.

The verdict

Both shares offer attractive value today. However, BP has the greatest potential to deliver fast earnings and dividend growth. If this comes through, then I expect them to be re-rated back above 500p.

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> David does not own shares in any of the companies mentioned.