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Why I’d sell Royal Dutch Shell to buy this FTSE 100 dividend stock

2018 was shaping up to be yet another successful year for the Royal Dutch Shell (LSE: RDSB) stock price. But since striking fresh highs above £28 per share in May, investor appetite has reversed, meaning that the Footsie-listed firm has now lost of all of its gains for the current calendar year.

Even though Brent prices have perked up again over the past month and are once again challenging $80 per barrel, share pickers have been less reluctant to buy or even hold on to Shell as the chatter surrounding possible US-Chinese trade wars has stepped up.

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Indeed, the driller was down again on Wednesday as poor services activity data from China followed disappointing manufacturing numbers earlier this week, exacerbating concerns over the impact of President Trump’s fight against what he describes as exploitation of the US by foreign powers.

But of course, this isn’t the only threat hanging over the crude price outlook. Indeed, the greater obstacle likely facing Shell in the coming years is the prospect of a sustained oversupply of oil as drilling activity picks up amongst non-OPEC members in particular.

Some may argue that Shell’s forward P/E ratio of 12.1 times bakes in these risks, however, while a corresponding dividend yield of 5.7% provides a compelling reason to invest for many. I would argue though that the following FTSE 100 dividend shares are much safer share selections for long-term investors.

A better dividend buy

Indeed, I’d be very happy to sell out of Shell today to buy shares in Bunzl (LSE: BNZL). Dividend yields aren’t as impressive — the figure for 2018 stands at just 2.1%, for example. And the support services provider is also more expensive, the business changing hands on a prospective P/E ratio of 19.1 times.

But in my opinion, the company is a much better bet than Shell to keep on growing the dividend. I’ve talked about Bunzl’s exceptional diversity before, a quality that has given it the confidence to lift the dividend each and every year for a quarter of a century.

And latest financials convince me that shareholder payouts can keep on marching merrily higher. The business saw revenues roaring 12% higher at constant currencies between January and June, to £4.34bn, while adjusted pre-tax profits rose 10% at stable exchange rates to £257.9m.

The result encouraged Bunzl to lift the interim 9% year-on-year to 15p per share. And there’s plenty of reason to expect profits to continue sailing higher given that it remains active on the acquisitions trail.

It’s spent £132m on M&A in the calendar year to date, the company racking up acquisition number four with the takeover of light catering equipment provider Enor late last month, a move that marks its first foray into the Norwegian marketplace. And its impressive cash generation (operating cash flow rose to £279.7m in the first half) gives Bunzl plenty of firepower to secure more earnings-boosting acquisitions.

Investors need to look past the barnstorming yields that Shell offers right now and consider whether the business will have the might to keep paying such handsome rewards. I am not so sure. But I am convinced that Bunzl is in much better shape to do so in the years ahead.

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Royston Wild 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.