Why I Love Royal Dutch Shell plc

There is something to love and hate in almost every stock. I still harbour warm thoughts towards Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US), although sometimes I wonder why.

Shell has taught me the value of patience.

Patience is a virtue, they say. If that’s so, long-term investors in Shell must be very virtuous indeed. The stock is down 2% over the last two years, against a 28% rise in the FTSE 100. It is up just 3% in the past year, against 16% for the index. Shell is the straggler of my portfolio. Yet I simply refuse to believe this will continue. Once it finally revs into action, I still believe it will turn out to be a growth machine. And as a long-term investor, I will be there right at the start.

It pumps up plenty of cash.

There was little to love about Shell’s recent Q3 results, with profits falling to $4.2 billion, down from $6.6 billion one year earlier. The share price instantly fell 4%. But there were compensations. Cash flow from operating activities hit $10.3 billion, up from $9.5 billion. Management was positive about the future, with a strong project flow for 2014 and beyond. It is also reducing its exposure to troubles in Nigeria. Maybe I’m clutching at straws, but that’s love for you.

You’ve just got to love that yield.

Shell has done its best to reward loyal investors (like me). So far this year, it has repurchased more than $4 billion of shares, a figure that should hit $5 billion by the end of the year. It has also distributed more than $11 billion of dividends in the last 12 months. Right now, it yields a high-octane 4.8%, covered 2.5 times. That is almost 40% higher than the FTSE 100 average yield of 3.5%. Management has just hiked the Q3 dividend by 5% to $0.45 per ordinary share. Better still, Shell is on a forecast yield of 5.3% for December next year.

My patience will ultimately be rewarded.

Businesses go in cycles. Shell is down, but it will get up again. Earnings per share fell 6% last year and are forecast to fall 17% in 2013. Next year, however, EPS is set to motor, with a rise of 11%. That is certainly worth hanging around for.

Shell is ready to shock the market.

Yes, there is plenty to hate about Shell right now. It is currently under investigation for rigging petrol prices, and European Commission plans to prevent future commodity market abuse could force up prices. Weak industry refining margins and oil price volatility are also offputting. But much of that is priced in, with Shell trading at a meagre 7.8 times earnings, roughly half the average for the FTSE 100. With a string of major new projects set to add more than $4 billion to its 2015 cash flow, now could be a great opportunity to buy. If you’re patient.

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> Harvey owns shares in Royal Dutch Shell.