When it comes to dividend stocks, big oiler Royal Dutch Shell (LSE: RDSB) is something of a king. Having never been cut since the Second World War, payouts from the largest listed company on the London Stock Exchange feel almost ironclad.
While nothing can be guaranteed in investing, it’s hard to see this sentiment changing anytime soon.
Bring on the buyback
Thanks to huge rise in the price of oil over the last year, today’s Q2/H1 figures were predictably decent.
Income rose to $6.02bn over Q2 — 290% up on that achieved over the same period last year. When added to Q1, Shell’s income for the half year was 135% higher at $11.92bn.
Although current cost of supply (CCS) earnings attributable to shareholders (excluding identified items) — Shell’s preferred metric — came slightly lower relative to the first quarter, the £4.69bn achieved was an increase of 30% on Q2 2017. So far this year, Shell’s CCS earnings are now a little over $10bn, up 37%. That said, it’s worth noting that the former was quite a bit less than the market expected, which may explain why the company’s shares were down in early trading.
As expected, it was business as usual as far as Shell’s payouts were concerned with the company’s latest quarterly dividend being confirmed as $0.47 per share.
Arguably the big news for investors today, however, was confirmation of a mooted share buyback programme to the tune of “at least” $25bn by 2020. That’s made possible, according to CEO Ben Van Beurden, by the company’s outlook on free cash flow (which already stood at a robust $14.71bn at the end of the six month period) and the progress made in getting its balance sheet in order. This will commence with purchase of up to $2bn worth shares over a three-month period.
Still a buy?
Right now, you can pick up Shell’s stock for a little over 12 times forecast earnings. Despite having already doubled in price since January 2016, that still looks pretty good value to me. Assuming dividend payouts remain where they are, the 5.2% yield is also enticing, particularly if owners can reinvest whatever they receive back into buying more shares. While this strategy possibly won’t allow you to quit the rat race tomorrow, the beauty of compounding should ensure that the option of leaving employment earlier than most becomes a lot more realistic.
Naturally, the stability of Shell’s share price (and the security of its dividends) is largely dictated by the price of black gold. On this front, there will always be bulls and bears. With output in the US and elsewhere showing no sign of slowing, some — including my Foolish colleague Royston Wild — are concerned about the prospect of a supply glut returning. With the possibility of other nations following the US in reducing the amount of oil they import from Iran, and questions remaining over how much is actually recoverable from shale-fields, I’m a little more optimistic.
Regardless of what happens next, the fact that Shell continued to return cash to loyal holders, even when the price of the black stuff plummeted between 2014 and 2016, suggests there’s no reason to panic if the value of a barrel weakens.
With ‘peak oil’ also still decades away, I think Shell remains a top pick for those wanting to pursue a slow-but-comfortable route to financial independence.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.