Investing in big oil, like Royal Dutch Shell (LSE: RDSB) and BP, isn’t exactly popular these days. It’s all down to this climate change thing, and the growing desire to move away from hydrocarbons. It shows in the RDSB share price, down more than 45% over the past two years.
We’ve seen a small upwards blip in the first week of June, with Shell shares rising 3% in the month so far. That’s pretty much at background noise levels though. So where is the share price likely to go now? Shell gave us a reminder Monday that maybe we shouldn’t write it off just yet.
The company released details of its first-quarter dividend payments in various currencies. In sterling, the payment amounts to 12.26p per share. If we assume we’ll see the same for each of the next three quarters, that would be a total of 49p per share. And that would provide a yield of 3.7%.
It’s not the biggest yield in the FTSE 100. But if it proves reliable, I think it could make Shell an attractive long-term buy. And that could mean the RDSB share price is currently too low.
New future for dividends
But is the dividend going to be reliable? Shell is one of those companies that’s been reluctant to meddle with its dividend policy for decades. Just keep it growing slowly and steadily, and ignore the short-term market. That saw Shell through the previous oil price crisis just fine. But the pandemic shock, coupled with escalating political pressure on energy markets, meant that couldn’t hold forever.
So Shell has rebased its dividends, setting a new level which the company believes is now sustainable. The dividend cut has resulted in a depressed RDSB share price, but I can’t help wondering if the sell-off has been overdone.
Now, I’m no energy industry analyst. And I’ve no hope of quantifying the likely state of the world energy markets over the coming years. So I can’t judge based on my own expertise. But the long-term conservative nature of Shell’s approach to dividends makes me think the company has put a lot of thought into the level it thinks can now be sustained.
RDSB share price: will I buy?
In short, Shell seems more likely to be able to analyse its own dividend abilities than anyone. Had it been a small oil company, or any other company without such a long and stable history, I’d place little confidence in its dividend proclamations. But I find myself trusting Shell. Well, as far as I’d trust any company.
So does the RDSB share price suggests a buy right now? Well, I do have my upbeat feeling about the dividend. But amid the massive uncertainty facing the energy business right now, Shell might just have got it wrong. To answer the question in the title of this piece, I think the Shell share price could easily show a bit more summer optimism and head upwards in June. Yet against the background of negativity, I’m not going to buy now. But I’ll keep watching.
Alan Oscroft 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.