If you are looking to snap up a bargain FTSE 100 stock, you are spoilt for choice after the recent crash. You can now grab top blue-chip companies at half the price you would have paid in January. In a few rare cases, you can grab a yield worth 10% a year or more. Here’s one bargain I really like.
The Royal Dutch Shell (LSE: RDSB) share price is trading 47% lower since Covid-19 struck. Yet the oil major is standing by its legendary dividend, which means it now yields an incredible 10.82% a year. That makes it a highly tempting bargain FTSE 100 stock.
Inevitably, there are risks. The oil industry has suffered a double blow. The coronavirus travel ban and lockdown has hit fuel consumption, while the decision by competitors Russia and Saudi Arabia to flood the market has done the rest.
I’d buy this bargain FTSE 100 share
At time of writing, a barrel of Brent crude trades at just over $21. At one point, producers were paying for people to take WTI crude off their hands. There is so much of the stuff washing around, they do not know where to store it.
This is bad news for Royal Dutch Shell, as its break-even price is $65 a barrel, according to Redburn. Yet the company will be unwilling to drop its dividend, like so many others have on the FTSE 100. Management is well aware of its proud record of never cutting its payout since the war. It showed tenacity in maintaining the payout in 2016, when oil crashed from around $115 a barrel, to a low of $26. Shell was a bargain FTSE 100 stock then, it’s a bargain now.
Shareholder payouts appear to be safe this year. Management is surely hunkering down in the hope of sitting out the current meltdown, and waiting for higher oil prices later this year or in 2021.
Royal Dutch Shell share price is cheap
The oil price has picked up in recent days, despite another big rise in US crude stockpiles. The first sign of an upward movement triggered a sharp 45% jump in the Shell share price, from its low of 916p on 18 March. Now that was a great time to buy this stock. This is why we at the Fool always urge long-term investors to go hunting for bargain FTSE 100 stocks when markets fall and everybody is panicking. The resurgence can be just as swift.
Anybody who buys Shell shares today must accept that the price could fall further, and the dividend could come under further pressure. If that wasn’t the case, its stock would be a lot more expensive to buy and nowhere near as tempting. Shell is still a great UK company and its shares are going cheap. I’d buy it.
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Harvey Jones 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.