Dividend of the Day: Is 7.5% Yielding Royal Dutch Shell Plc A ‘No Brainer’?

The importance of dividends to investors can’t be understated. This example from the US market says it all:

Over the last 100 years the S&P 500 rose 273-fold, but adjusted for dividends it rose 18,520-fold.

Dividends are a massive component of long-term investing results. If you’re interested in income-producing, dividend-paying shares, you may be interested in the payout on offer from arguably the most prestigious dividend-payer on the UK stock market.

The oil price has risen back above $40 per barrel, and that is obviously very good news for Royal Dutch Shell (LSE: RDSB). The shares have responded well to the development — but are they a good “Buy” today for income-seekers?

The fundamental attraction to Shell for most investors is its considerable dividend. This year UK shareholders should see a bumper payment in sterling terms as the dividends are declared in US dollars and translated to Sterling.

Shareholders can expect around 132p in dividends this year spread out across 4 equal installments, of course subject to further currency fluctuations. They have already announced that they intend to pay 47 cents a share for Q1, which at the current exchange rate to the pound is around 33p.

The big talking point for Shell investors of late has been the takeover of BG Group.

Despite recent commodity price fluctuation, Shell certainly has the resources to play the long game. In addition to acquiring BG Group’s oil assets, they created the world’s largest supplier of Liquefied Natural Gas (LNG). It is an area that Shell knows well, having pioneered the production of LNG in 1964.

Presently, the main thing propping up the share price is the dividend, but big moves in the oil price go straight to the bottom line and into cash flows. The move from $27 to $40 has clearly relieved investors with the share price having risen from a low of £12.77 to £16.69 today.

With a dividend yield of over 7.5%, and with the dividend looking reasonably safe, that provides a solid support for the share price — but potentially rising oil prices mean that the ceiling could be very high indeed.

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Mark Riding has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.