This Week’s Top Blue-Chip Income Buy: Royal Dutch Shell Plc

G A Chester rates Royal Dutch Shell Plc (LON:RDSB) as a great buy for dividend investors today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term. Right now, I reckon Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) is looking a great buy for income.

Huge

Shell is the biggest company on the FTSE 100, weighing in with a market value of £130bn. Last year the board distributed a staggering $11bn of dividends. That may be mind-blowing in nominal terms, but $467bn of revenue and $27bn of profit put it into perspective.

Big oil companies are geared to the prevailing state of the global economy and the economic outlook. As such, revenues and profits can ebb and flow pretty dramatically. Nevertheless, Shell has been adept at maintaining good dividend cover and growth across the economic cycle. I emphasise that because there have been years of dividend stagnation and poor cover, but more than offset by the years of impressive growth.

A great opportunity right now

Shell’s shares reached a high for the year to date — 2,365p — as long ago as January. At the time of writing, the shares are trading at 2,130p, 10% down from the peak and only a little above their recent low for the year.

There’s no doubt about it, Shell is unloved by the market. The company is trading on just 8.7 times this year’s forecast earnings and 8.2 times next year’s. That puts the shares deep in ‘value’ territory.

However, dividend income is the focus of this article, so let’s move swiftly on to that. Back in January, Shell’s forecast 12-month dividend yield was as low 4.8%. Today, the potential starting income has gushed up to 5.5%.

The two quarterly dividends Shell has paid so far this year were 5% up on the 2012 payouts, which bodes well for the year ahead — although do bear in mind that the company declares its dividends in dollars, so there can be some divergence for sterling investors due to exchange rates.

Nevertheless, Shell’s history of increasing its dividends across the economic cycle applies equally to sterling investors, and I see no reason why that can’t continue. Hence, with a juicy potential starting yield of 5.5%, I rate Shell a great buy for long-term income investors right now.

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.

> G A Chester does not own any shares mentioned in this article.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »