Today I am outlining why a stellar dividend record makes Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) an excellent stock selection for income seekers.
Drill down for massive dividends
Royal Dutch Shell has forged an enviable reputation as a blue-chip dividend marvel, offering gargantuan payout prospects regardless of short-term earnings pressure. The company is expected to hike the full-year dividend again this year, to 186 US cents per share, which would represent a chunky 8% annual increase. And I believe that the prospect of explosive earnings should keep the energy goliath’s compelling dividend story rolling over the long term.
The oil giant’s significant restructuring strategy, focusing on high-value projects while divesting less profitable assets, is helping to underpin confidence that earnings should shoot higher in coming years. Indeed, dedicated capex spend in the region of up to $130bn through to 2015 underlines the fantastic revenues potential on offer.
The company has attracted negative headlines in recent days after chief executive Peter Voser warned that it will take longer than initially anticipated to generate profits from its struggling shale gas projects in the US. Even so, I believe that Royal Dutch Shell has the clout to fully utilise these potentially earnings-busting assets, even if progress is slower than first anticipated.
Make no mistake: Royal Dutch Shell has an exceptional record of paying dividends even in times of severe earnings pressure. The company lifted the full-year payout by 5% in 2009, to 168 US cents, even though earnings slid almost by more than two-thirds and many of its rivals were forced to slash dividends amid similar earnings difficulties. Following two consecutive dividend freezes, Royal Dutch Shell raised the payout to 172 US cents last year, even though earnings per share slipped again, dropping by 6%.
And Royal Dutch Shell is expected to follow this year’s projected dividend rise, to 186 US cents per share, with a further 3% increase in 2014, to 191 cents, according to current City estimates. Although this represents a sizeable slowdown from 2013’s increase, these payments still carry yields matched by few other listed stocks.
Indeed, for 2013 and 2014 Royal Dutch Shell currently boasts dividend yields of 5.4% and 5.6% respectively. Not only does this comfortably surpass the FTSE 100 forward average of 3.2%, but it also blows a prospective reading of 3.1% for the entire oil and gas producers sector out of the water.
And with Royal Dutch Shell trading on a miserly forward P/E rating of 8.7 for 2013, well within bargain territory below 10 and thrashing its industry rivals’ corresponding reading of 20.1, I believe that the oil giant represents stunning value at current levels. In my opinion the company is a great selection for those targeting either or both chunky earnings growth and compelling dividend prospects.
