4 Reasons To Buy Royal Dutch Shell Plc Today

Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) has been one of the FTSE 100‘s star performers this year. However, as the company’s shares have now risen nearly 12% year to date, outperforming the wider FTSE 100 by more than, well, nearly 12%, some investors have started to worry about Shell’s valuation. 

But Shell is not done yet and here are four reasons why you won’t be disappointed if you buy the company’s shares today. 

Qualified management royal dutch shell

A good management team is always a great reason to put your faith in a company and Shell’s new CEO, Ben van Beurden, has won the support of the City after only a few months on the job.

Mr Beurden was appointed CEO only a few months ago but is a respected Shell veteran with 30 years’ of experience behind him. Upon taking up the helm, Shell’s new CEO and his management team got straight to work, divesting non-core assets and placing Shell on a growth trajectory.

So far this year, Shell’s management has sold most of the company’s holding in Woodside Petroleum and outlined plans to float its Midstream Partners US pipeline subsidiary, along with other smaller disposals.

These disposals are part of a $15bn disposal programme, which the company is undertaking very quickly. Indeed, $12bn of disposals have already been undertaken, setting the stage for significant free cash flow generation from 2016; a year earlier than many of Shell’s peers, which are also struggling with poor returns on investment.

North American progress

One of Shell’s most troublesome investments is North America. The company revealed last year that it has $80bn of capital employed within the region, 40% of total capital employed around the world, yet last year Shell’s North American arm lost $2bn. The company would be able to achieve a better return placing the cash in a savings account.

However, Shell has made drastic decisions this year to change its North American fortunes. As mentioned above the group is spinning off the North American midstream division. Job cuts are also on the cards and the group has switch equipment suppliers to reduce costs.  

Output growth

But Shell is not just cutting costs to boost profits. The company has numerous projects coming onstream within the next year or so, which should boost production. 

For example, Shell has 30 major projects currently in the works, which could add a total of seven billion barrels of oil equivalent to its reserves. These projects are in addition to the seven developments the company brought onstream last year. 

Paid to wait

The final reason why you should buy Shell today is for the company’s dividend. Shell’s dividend could be considered to be one of the safest within the FTSE 100. 

In particular, the company has consistently paid and increased its payout every year since the end of the Second World War and this is set to continue. The company’s current dividend yield of 4.1% is covered one-and-a-half times by earnings. 

What’s more, some analysts have begun to speculate that fatter returns could be on the cards as Shell completes its $15bn disposal plan. It is expected that management could authorise a multi-billion dollar share buyback plan, or hike the dividend payout with the disposal proceeds. 

Foolish summary

So overall, with a strong management team in place, plenty of projects set to come on-stream within the next few years and asset disposals well under way, Shell is still a great buy at today’s prices. 

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Rupert does not own any share mentioned within this article. The Motley Fool owns shares in Tesco.