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Forget oil price falls! I think a portfolio needs Royal Dutch Shell

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Global economic growth is slowing. There was the recent US-Iran crisis that got many investors panicking also. Even though oil momentarily shot to about $71 a barrel, now it is almost back to where it was.

Still, in spite of the projected further fall in the price of oil, you might want to consider getting yourself some Royal Dutch Shell (LSE: RDSB).

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A dividend king

Shell is a dividend king. Presently, its yield is 6.3%, the highest of the oil companies. Only BP comes close, at just over 6%. Notably, though, there are concerns that the company might have to sacrifice its dividend payments if the price of oil does not hold up in the coming years.

Also, there is the rising long-term debt profile stemming from the 2016 $53 billion acquisition of BG Group and other capital expenses. Nevertheless, a dividend cut is highly unlikely as the company is progressing towards the range of $28 billion to $33 billion organic free cash flow by the end of 2020.

Shell is forging on

Naturally, oil – the “fuel of the world” – is highly susceptible to regular swings in price. For instance, between late 2015 and early 2016 the price tanked, leading to disappointing performances for Shell, ExxonMobil and most of their peers.

Add to that the persistent debates on oil use that have been garnering more support in recent years. Environmental and workplace safety concerns are at the top of the list of the highly scrutinising factors under which the oil industry is becoming increasingly assessed.

As a result of these concerns, the world is making efforts towards deflecting to a lower-carbon economy. In fact, in 2019 in the United States, the rising use of natural gas pushed coal to its lowest demand in more than four decades.

The good news, however, is that Shell is responding quite well to these industry developments. The oil giant is investing heavily in natural gas. In fact, since 2018, its integrated gas business has been the largest contributor to its net income, affirming the company’s dedication to a more renewable-based energy future.

Conclusion

Royal Dutch Shell is properly responding to the changing landscape of its industry. Especially, the company is strongly positioning itself to benefit highly from future growth in renewables. Presently, focusing on solar, it is leading the way in clean energy investments.

In fact, if there is a company that is well poised to benefit from the far-ranging potentials of oil today, it is Shell. And if there is a company that is less probable to suffer if the world completes its transition to a lower-carbon economy, it is also Shell. The partnership with Qatargas, its LNG Canada joint venture and its Prelude FLNG project in Australia, are all lofty attempts towards ensuring that.

Therefore, Shell is as solid as ever. And at its current dividend yield of 6.3%, it makes a good buy if you are an income investor.

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Pi De Jonge 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.

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