Shares of Royal Dutch Shell (LSE: RDSB) are trading at £15.50 as I write, 38% below their 52-week high of £25, and lower than they’ve been in over five years. The FTSE 100 giant is suffering from the general weakness in the market, but also, of course, from the low oil price.
Here are three reasons why investors might want to consider piling in right now.
Low is good enough
“The shares could go lower” is a refrain often heard at times like this. It’s true, of course. But, nobody rings a bell to tell you when the bottom of a share decline has been reached.
Buying low — even if it doesn’t prove to be at the bottom — is a perfectly good strategy for long-term investors. Investing in a world-class company at a price not seen in more than five years should pay off handsomely in the decades to come.
At the current price, you’re paying just 11.8 times this year’s depressed forecast earnings. I think in a few years we’ll look back and be able to say that the shares were a snip at today’s price.
As well as the low earnings rating, Shell offers a tremendous dividend yield of close to 8%. Reinvesting such a substantial return of cash — particularly when the shares are trading at such depressed levels as today — gives a serious turbo-boost to long-term returns.
Of course, it’s entirely possible that Shell could cut its dividend. Few companies sustain as high a yield as 8% for long. Either the share price rises to bring the yield down to a more normal level, or the dividend is reduced, with the same effect.
Shell’s dividend is “iconic“, as its management says, having never been cut since the Second World War. The Board believes it can at least maintain the dividend through the current oil-price rout. The levers are certainly there for it to do so for the time being, and, if it does eventually come to a cut, it wouldn’t be the end of the world. After all, a halving of the dividend would still give a more-than-useful 4% yield.
Since Shell released its half-year results at the end of July, a number of the company’s directors have been buying shares with a vengeance.
Chief financial officer Simon Henry has purchased 40,000, chairman Charles Holiday 20,000, and non-execs Euleen Goh and Linda Stuntz 9,000 between them. Together, these four directors have invested well over £1m in less than two months.
There’s no doubt these directors see value in Shell’s shares at current levels. This degree of boardroom confidence — that’s to say, confident director words backed up by substantial personal investments of hard cash — is the third reason why I believe private investors should be seriously considering buying into this bargain blue chip at the present time.
G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.