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Beginners Portfolio: BP plc vs Royal Dutch Shell Plc

This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.

The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.

royal dutch shellRoyal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) released first-quarter results yesterday, and though earnings per share (EPS) fell by 40%, that was largely expected — and the share price jumped by 105p (4.3%) to 2,536p in early trading as a result.

That takes Shell shares up 12% over the past 12 months, and up 11.8% since 2 August 2012.

bpBetter than BP?

But what’s the significance of that date? It’s the day I added shares in rival BP (LSE: BP) (NYSE: BP.US)  to the Beginners’ Portfolio, and since then I’ve fretted over my decision and thought more than once that I’d have been better off with Shell.

But when I calculated the figures this morning, I was in for a surprise — BP shares are up 15.9% over the same timescale, to 503.6p as I write! So even with the continuing fallout over the Gulf of Mexico disaster and the ongoing legal uncertainties, BP shares have beaten Shell.

Don’t forget the cash

But wait, what about dividends?

CashFrom BP we’ve had a total of 39.8p per share, while the cash pile from Shell adds up to 194.8p.

So each of our BP shares bought at a price of 434.4p has netted us a total of 543.4p, for a total gain of 25% — while a Shell share bought for 2,269p on the same day would have brought home the sum of 2,733p, and that’s an increase of 20.5%.

So we’ve still come out ahead with BP!

Maximum pessimism

Back when the decision was made, the big uncertainty was, of course, the oil spill. It was clearly going to cost BP a packet to pay for the cleanup and for compensation. But the question was how much of that was already factored into the share price — had investors at the time overreacted to the company’s woes and were the shares oversold?

We do have plenty of historical evidence to draw on, with the investing crowds pushing up bubbles to unrealistically high valuations — and conversely, panicking unduly when things are going bad, as we saw at the depths of the credit crisis when shares were being offloaded for stupidly low prices.

And that does seem to have happened here with BP — and BP shares are still on a lower P/E multiple than Shell.

A useful experience

Of course, we’re still in early days, but I’m pleased by how things are working out. And it’s been a good learning experience, which is what this portfolio is all about.

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Alan does not own any shares in BP or Shell.