The Motley Fool

Is Royal Dutch Shell plc a good ISA stock after the recent share price fall?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Oil pipes in an oil field
Image source: Getty Images.

Royal Dutch Shell (LSE: RDSB) shares have not escaped the recent FTSE 100 sell-off. After a strong finish to 2017 and a positive start to January in which Shell’s share price rallied from around 2,400p to a 52-week high of over 2,600p, the stock has since fallen back to the 2,260p level today. That share price represents a 13% decline from January’s high.

There’s no denying that Shell is a world-class company. The oil major has a total market capitalisation of almost £200bn and is the largest weighting in the FTSE 100 index. As a result, the stock is held by the majority of large mutual funds and pension funds. If you own Shell shares, you’re in good company.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

But does Shell’s current share price offer value? Is the oil major a solid pick for an ISA at the moment? Let’s take a look at the investment thesis.

Valuation

With analysts expecting Shell to generate earnings per share of $2.35 for FY2018, the stock’s current forward-looking P/E is a reasonable 13.6. That’s bang in line with the average FTSE 100 P/E according to Stockopedia. It’s worth noting, however, that rival BP has a slightly more expensive valuation and currently trades on a forward-looking P/E ratio of 14.7. This suggests that Shell is the better value of the two stocks. Overall, I think Shell’s valuation is quite reasonable after the recent share price fall.

It’s worth pointing out that the oil price fell sharply during February’s sell-off, with Brent dropping from over $70/bbl to around $62/bbl. Oil has since recovered to $67/bbl, yet Shell’s share price remains depressed. This leads me to believe that it could potentially rebound higher when we get through this current period of high volatility.

Dividend

We can’t talk about Shell without mentioning the dividend, as the oil major offers one of the highest yields in the FTSE 100 at present. Last year, Shell paid its shareholders $1.88 per share in dividends. At the current share price and GBP/USD exchange rate, that equates to a high yield of 5.9%. Pocketing that kind of dividend on a regular basis, and compounding it over the long term, can really enhance your wealth.

Shell’s current dividend yield is almost double the average for the FTSE 100 (3.1%) and is over three times the yield you can expect to receive from the average cash ISA these days. So that has to be viewed as a positive. Having said that, Shell has not increased its dividend for several years now, which is not ideal from an income investing perspective. There are plenty of companies within the FTSE 100 that are increasing their dividends, and therefore may offer better inflation protection. It’s worth noting though that Shell does have a fantastic dividend track record and has not cut its payout since WW2.

Risks

Of course, the shares aren’t without risks. Another dramatic collapse in the oil price could result in the stock falling significantly. It’s also worth keeping the long-term threat of renewable energy in mind.

However, overall, I believe Shell shares offer an attractive investment opportunity right now. I own it in my own personal ISA and plan to keep holding the stock for the long term.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Edward Sheldon owns shares in Royal Dutch Shell B. The Motley Fool UK has recommended BP and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.