The number one FTSE 100 share I want in an income portfolio

Royal Dutch Shell plc class B (LON: RDSB) has been the backbone of my income portfolio for years. Here’s why.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When looking at a stock in which I want to invest for income, I consider three main points. The first and most obvious one is that I want the company to be offering a decent dividend yield at the current price. For me, this is a ‘Goldilocks’ consideration – too high a dividend and it worries me the company is trying to entice investors for some reason, too low and it simply isn’t enough return on my investment. The 5%-6% range is where I feel just right.

Secondly, I want these dividends to be consistent. Though I am a big believer that good management shouldn’t be afraid of cutting dividends if it needs to, for an income-focused investment, this is not what I want. I want nice, steady dividend growth year in and year out, so I know my returns will hold their value.

Finally, I want to invest in a company that will hopefully see its share price climb as I hold the stock, or at the very least be in a solid position to hold its value for the long haul. This, of course, usually means a well-established company in a less volatile industry – a blue-chip firm is usually a safer choice.

The one company that I have held for the past few years, and which meets all these criteria, is the oil giant Royal Dutch Shell (LSE: RDSB).

Does it tick the boxes?

With these criteria in mind then, let us look at Shell’s numbers. It currently has a yield of 5.6%, with a stated policy of growing the dividend “in line with our view of the underlying earnings and cash flow”. This has seen these dividends grow by an annual rate of 5.6% over the past five years. In fact, the company hasn’t cut its dividend since 1945, an impressive statistic if ever I saw one.

That’s a tick for box one and a tick for box two.

Meanwhile, for the past three years, the company has seen both its revenue and profit margins increasing. Naturally, as with all oil companies, much of its outlook depends on the price of crude itself – not the least volatile of markets – but as my fellow Fool Rupert Hargreaves notes, Shell is “well versed in dealing with any issues that arise”.

This investor-focused offering seems set to continue for the foreseeable future as well — the company recently promising up to $125m in cash returns through dividend payments and share buybacks over the next five years.

Holding Shell for the long term seems even more viable when you consider its policies towards diversifying into renewable energy as well as even broader fields. Just last year it explored the possibility of an Uber-style car service (it later stopped its efforts as it became apparent it would not work).

All told, a tick for box three I think.

It may not be the share to pick for skyrocketing short-term capital gains, but for the long term, I back the company. For any income-focused portfolio, I think Shell is one company you can’t ignore.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl owns shares in Royal Dutch Shell. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »