Demanding that any stock pays a passive income for life is a tall order. In my case, that could be up to 30 years. Yet I reckon this one could do it. It should also deliver some capital growth on top.

Dividend income is never guaranteed. Shareholder payouts can be cut at any time, as we saw after the financial crisis and again during the pandemic. It doesn’t have to the end of the world, though.

Top FTSE passive income choice

Dividend aristocrat Shell (LSE: SHEL) was fabled in the investment world for increasing its dividend for every single year after World War II. That proud record finally ended in April 2020, when it slashed its payout by two thirds as oil demand plunged during the pandemic. But that crisis was entirely beyond its control. 

The dividend cut was a blow to Shell’s reputation but a boost for its bottom line. It freed up $9bn at a difficult time, when a barrel of Brent crude traded at just $24.79. Today, the Brent price stands at $93.70 and unsurprisingly, Shell is on a roll. 

Its share price has more than doubled in just two years, as investors pile in to capitalise on this year’s energy price shock. As well as a rocketing share price, they will also partake in a $6bn share buyback programme, after Shell’s Q2 adjusted earnings jumped 26% to $11.47bn.

Before Covid struck, Shell shares typically yielded around 5% to 6%. Today, they would give me a lower passive income of just 3.41% a year. That’s slightly below average for the FTSE 100, which currently yields 3.66%.

Yet the dividend is solid, with the yield comfortably covered 2.8 times by earnings. The forecast yield is 3.8% and will be covered an astonishing 5.5 times by earnings. That should give management plenty of scope for progression.

Shell also needs to change

No stock is without risks. The oil price is now falling and a global recession would hit demand. It would have been better to buy Shell two years ago, before the share price took off. However, with today’s price-to-earnings ratio of 10.7 expected to fall to just 4.9 times earnings.

The green transition could sink Shell, unless it can make a successful shift to renewables. This is less of a worry than it was a year or two ago. Events in Russia have reminded us that the world still runs largely on fossil fuels.

If Shell’s dividends are to last for decades, it needs to make a successful shift into renewables. It can’t keep clinging onto fossil fuels as the planet warms. That will be a major challenge, but I think Shell can do it. In practice, management does not have any choice, as the pressure will only grow.

No investment is without risk. Shell also offers outsized rewards. I’m actively considering adding Shell to my holdings this month.

The post I’d buy this top FTSE stock to generate a passive income for life appeared first on The Motley Fool UK.

More reading

• Up 36%, could Shell shares still offer value for the long term?
• Does the Iran war spell long-term disaster for BP and Shell shares?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• Prediction: 12 months from now, £5,000 invested in Shell shares could be worth…
• The BP and Shell share price are being hammered today – what should investors do?

Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions.

Lloyds (H1 Earnings)

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. The FTSE 100 bank is expected to post its half-year earnings for its six months performance ending June on 27 July. The company’s financial year ends in December.

The overall consensus is that Lloyds is expected to continue growing its top line from rising interest rates. That being said, its diluted EPS is expected to decrease for the half year and full year. This is most probably due to the increasing number of defaults and bad loan provisions. Investors will also be keeping an eye out for the remediation figure, number of late-stage loans, and free cash flow to determine whether the UK is entering a recession.

Shell (Q2 Trading Update)

Shell (LSE: SHEL) is a British multinational oil and gas company. It is one of the biggest oil and gas firms. And by revenue and profits, it’s one of the largest companies in the world. The giant is set to reveal its Q2 numbers for its three months performance ending June on 28 July. The company’s financial year ends in December.

The earnings preview seems to indicate a top and bottom line improvement to Shell’s business, as last year’s figures were still impacted by worldwide lockdowns. As global travel resumes, investors will be keeping an eye out for future guidance to determine whether analysts estimates can be met for the full year. If so, the Shell share price is expected to stay green for the foreseeable future.

Unilever (H1 Earnings)

Unilever (LSE: ULVR) is a consumer goods conglomerate producing food, condiments, ice cream, cleaning agents, beauty products, and personal care. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. Unilever will be releasing its half-year earnings for its six months performance ending June on 26 July. The company’s financial year ends in December.

While revenue is expected to increase on a half-year and full-year basis, underlying EPS is expected to fall. This is most probably due to high inflation rates that are beginning to take a toll on a global scale, with higher costs impacting the producer’s operation expenditure. Nonetheless, a beat on both revenue and EPS estimates this week could see the Unilever share price push into the green for the year.

The post Earnings preview: Lloyds, Shell, Unilever appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Unilever. 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.

It’s been a volatile start to 2022 for global stock markets as geopolitical uncertainty and monetary tightening begin to bite. However, I’ve identified two FTSE 100 stocks that have bucked this trend.

With strong fundamentals and solid earnings forecasts, I believe these UK shares have the potential for substantial gains over the next five years and beyond. Here’s why.

FTSE 100 share #1 – Shell

Shell (LSE: SHEL) stock has enjoyed explosive gains of over 26% this year after superb financial results for 2021. Adjusted earnings beat expectations, rocketing to $19.29bn from $4.85bn the previous year.

Buoyed by sky-high oil prices, the FTSE 100 energy giant will undertake an $8.5bn share buyback programme by the end of Q2. Shell also intends to hike its dividend by 4% to $0.25 per share.

Yet despite its strong recent performance, the Shell share price is marginally down over five years. In addition, the plummeting values of its Russian assets have recently cost the company nearly $5bn since it ceased operations in the country.

Nonetheless, I remain bullish. Shell has sufficient geographic diversification to withstand Russian sanctions in my view. For instance, there’s its substantial on-stream oil and gas projects near Nigeria and Mexico.

Shell stock could also benefit from an agreement with Deutsche Telekom to supply renewable energy for 10,000 electric vehicle charging points in Germany. I regard this as a positive development for the fossil fuel business.

While there are signs of a greener future for the company, I still see oil as the real driver of growth for Shell’s share price. During a booming commodities cycle, the next five years should be significantly better for this FTSE 100 stock in my opinion. I’d buy.

FTSE 100 share #2 – London Stock Exchange Group

Financial infrastructure and data analytics form the core of London Stock Exchange Group (LSE: LSEG)’s business. The LSE share price is up 16% over three months and an impressive 73% over three years. This FTSE 100 company generates 44% of its earnings in EMEA, 42% in the Americas and 14% in Asia.

LSE services 40,000 customers in 190 countries. Last year, the company enjoyed revenue growth in all three of its primary divisions — data & analytics, capital markets and post trade. Adjusted earnings per share almost doubled to 287p.

It also delivered statutory total income of £6.4bn for 2021 and a 27% increase in the total dividend per share to 95p. This year, the company has ambitious plans to expand its Workspace technology to foreign exchange users at scale, reinforcing its end-to-end FX offering. Overall, the FTSE 100 stock looks well positioned for long-term growth.

However, cautious investors will note recent news concerning heavy selling of LSE shares. Institutional investors sold a total of £450m last month, according to Bloomberg, suggesting the stock could be overvalued. As Brexit tensions persist, further headwinds are posed by EU plans to move its clearing operations away from the London Stock Exchange to the eurozone by 2024.

Nevertheless, I’m optimistic about this British financial company. While not without risks, it’s a highly cash-generative business with truly global diversification. For me, LSE stock is a good investment to buy and hold for years to come.

The post 2 soaring FTSE 100 shares I’d buy and hold until 2027 appeared first on The Motley Fool UK.

More reading

• Up 36%, could Shell shares still offer value for the long term?
• £5,000 invested in FTSE 100 stock London Stock Exchange Group 1 month ago is now worth…
• Does the Iran war spell long-term disaster for BP and Shell shares?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• Prediction: 12 months from now, £5,000 invested in Shell shares could be worth…

Charlie Carman 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.

The FTSE 100 started the year well. Global investors finally woke up to the opportunities on the blue-chip benchmark index after years when their attention was elsewhere. I think they shouldn’t have left it so long — the opportunities were there all along.

The FTSE 100 is still up 9.77% over the last year, despite crashing on Friday, when the index fell almost 3% to near the 7,000 mark.

It is hardly surprising that UK shares crashed, given the impact of the Russian invasion of Ukraine on the global economy. We have been plunged back into a terrifying world we thought we had left behind, and fear and uncertainty is rife.

FTSE 100 looks a buy to me

At times like these, it is tempting to shun the stock market altogether. I’ve been caught up in the general sense of dread and panic myself, but have resisted the temptation to sell. I am still 10-15 years away from retirement, and I hope that gives me long enough to recover from the next market crash (and the next one, and the next…).

I’ve stood by my portfolio of FTSE 100 shares through the dot.com crash, 9/11 attacks, financial crisis, Covid pandemic, and now war in Ukraine. I’m ignoring doomsayers saying that people should pile into cash and gold, and holding my course.

I will also top up my holdings in UK shares from time to time. The FTSE 100 still looks pretty good value to me, trading at a price/earnings ratio of 14.82. The S&P 500 currently trades at more than double that, with a Shiller P/E of 35.18. It seems overvalued to me.

One reason the FTSE 100 has underperformed the US over the last decade is that it does not have the same exposure to fast-growing technology stocks. However, that sector now looks played out, whereas defensive, value stocks are swinging back into favour. I’m thinking of the banks, oil majors, mining companies, and insurers. The UK has plenty of those.

I fancy Barclays and Lloyds Banking Group, Shell, Rio Tinto, and Anglo American, and two old favourites Aviva and Legal & General Group. They may not be the most exciting stocks in the world, but they look strangely reassuring right now.

I’m backing UK shares

I will look to buy more FTSE 100 shares when I can, while accepting that any of my stock picks could crash if the political situation gets even worse. If it does, I may screw up my courage take the opportunity to pick up a few more of my favourite companies. Again, my aim is to hold for the long, long term.

The FTSE 100 is currently expected to yield 4.1% in 2022. That’s a terrific rate of income, at a time when a best buy easy access savings account pays around 0.60% a year. And of course it should rise over time, as companies increase their dividends. That’s why I’m standing by it, through thick and thin.

The post I reckon the FTSE 100 offers good value today. That’s why I’m buying and holding UK shares appeared first on The Motley Fool UK.

More reading

• Here’s how a small dividend stock ISA could produce £1,400 in passive income a year
• Here’s how Barclays shares could climb another 40%
• How to earn £596 a year in second income from 1 FTSE stock
• With the stock market at record highs, should I invest now or wait?
• How can investors aim to turn £100 a month into £6,515 in annual passive income?

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

To generate around £800 a month in tax-free passive income, I need ISA savings of £240,000. How do I know that? Thanks to an often overlooked investment benchmark called the 4% rule. Put simply, this states that if I withdraw 4% of my retirement portfolio as income each year, my pot will never run dry.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

How I’m building a passive income for retirement

The 4% rule assumes average investment growth of 7% a year, including dividends. If I withdraw 4% a year and inflation averages 3%, my portfolio will stay roughly the same size. Of course, none of those figures are guaranteed, but a target of £240,000 in ISAs looks just about doable, at a stretch. And 4% of that is £9,600 a year, or £800 of monthly passive income. It’s not riches, but it’s better than relying purely on the State Pension.

So much for rules. I will also have to knuckle down and build enough ISA savings to generate my target income. There’s still a way to go, but I’m taking advantage of current stock market volatility to top up my portfolio. I need to act fast, because the annual ISA deadline is just one month away, at midnight on 5 April.

The FTSE 100 is one of the best stock markets in the world for dividends, and I’m underpinning my portfolio with a couple of top equity income funds. I’m a long-standing fan of the City of London Investment Trust, and it’s about time I bought it. Its current yield is a rather splendid 4.48%. The ongoing charge is just 0.38%, so I’d get to keep most of that juicy passive income for myself.

I’m also investing in FTSE 100 stocks

City of London has even started to generate some growth, as the FTSE 100 swings back into favour, rising 15.4% in a year. I’ve been investing in the Rathbone Income fund for years. Its yield is lower at 4.06% and charges are higher at 0.75%, so I may rethink this choice, but it has grown steadily for the 15 years I’ve held it, and I’m reluctant to let it go.

To generate the rest of my passive income, I would look to build a portfolio of individual FTSE 100 stocks. I like the look of Lloyds Banking Group right now, as rising interest rates should boost its net lending margins. Yet it still trades at a dirt-cheap P/E of just 6.1 times earnings. The dividend yield is now 4.34%, and I expect that to continue climbing.

Oil giants BP and Shell are rising along with the oil price, and I’d buy them both, along with passive income heroes including mining giant Rio Tinto, financial firms M&G and Phoenix Group Holdings, housebuilder Persimmon and mobile phone operator Vodafone.

Of course, I have to remember that each of these stocks comes with risks, both sector- and company-specific. But I feel that owning a basket of them mitigates some of the risk for me.

I hope that the 4% rule will serve me well when the time comes to retire.

The post I’m targeting £800 a month passive income from dividends thanks to this forgotten rule appeared first on The Motley Fool UK.

More reading

• Here’s how a small dividend stock ISA could produce £1,400 in passive income a year
• Here’s how Barclays shares could climb another 40%
• How to earn £596 a year in second income from 1 FTSE stock
• With the stock market at record highs, should I invest now or wait?
• How can investors aim to turn £100 a month into £6,515 in annual passive income?

Harvey Jones holds Rathbone Income but 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.

Profits soar

Let’s start by looking at just how good business has been.

Thanks to soaring oil and gas prices, profit came in at $4.1bn for the final three months of last year. This compares favourably to the $3.3bn in Q3. All told, BP made a $12.8bn profit in 2021 — the company’s highest number for no less than eight years.

Bumper cash flow has also allowed BP to strengthen its balance sheet. Net debt stood at $30.6bn at the end of 2021. That’s a reduction of $8.3bn from 2020. 

CEO Bernard Looney said the results show that the company is “performing while transforming” into an integrated energy company with more focus on offshore wind and hydrogen projects. I can’t see any reason to argue against that based on today’s figures.

Dividend delight

One of the main attractions of the shares over the years has been its dividend stream. Today, it said it would be returning 5.46 cents per share for the last quarter.

Analysts are predicting that the total payout will rise very slightly in 2022 to 22.4 cents (or 17p) per share. That gives a yield of 4.1% at the current BP share price. For perspective, that’s substantially more than the 0.61% in interest I’d get from the best Cash ISA.

For its part, BP is forecasting being able to raise the annual cash return by “around 4% through 2025“. Having been buying back its own stock by the bucketload over recent quarters, it also plans to purchase another $1.5bn worth of shares from surplus cash flow over Q1. 

Getting political 

If today’s report made for pleasant reading for investors, the sentiment was not shared by campaigners. This highlights something that I’d need to consider before investing today, namely the threat of a one-off windfall tax. This could certainly have an impact on the near-term performance of the BP share price.

Another thing I’d need to remind myself is that BP has no control over the price of what it produces. Indeed, the company made a point of stating that demand for oil and gas could remain volatile in 2022. Lower production and flat margins are also likely in the current quarter. Again, this could prove a headwind for the BP share price.

Returning to dividends, it’s also vital to remember that payouts are never guaranteed. In fact, BP has been very inconsistent over the years in what it returns to shareholders. That could be an issue for me if I were overly dependent on the £80bn cap company for passive income. 

Better buy?

Contrary to many stocks, the BP share price is riding high in 2022. Up 17% year-to-date and almost 57% in 12 months, this is a perfect example of how profitable it can be for me to buy when no one else is. 

Seen purely from an investment perspective, I still think there’s a place for the stock as part of a fully-diversified income-focused portfolio. If capital gains were my chief concern, however, I’d easily choose this other stock from the FTSE 100 over the oil behemoth. I’m not buying today as I think a lot of good news looks priced in and I don’t see much room to rise from here.

The post Will the BP share price keep rising? appeared first on The Motley Fool UK.

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Paul Summers 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.

Ringing endorsement for this penny stock

As deals go, this is top drawer stuff. Today, Seeing Machines announced a global framework agreement with top-tier oil giant Royal Dutch Shell to provide its distraction and fatigue tech — otherwise known as Guardian — to the latter’s fleet as part of its overall risk management plan.

Given that its workforce covers an estimated 500m kilometres every year (and what they are transporting tends to be rather flammable), this agreement makes clear sense from a safety perspective.

Naturally, it will take some time to fully implement this agreement. According to today’s statement, the installation of Seeing Machines’ tech is likely to begin this year. However, the sheer scale of Shell’s operations means the rollout might take “several years“.  

Still, an endorsement from Shell is hugely significant in my eyes. If you have one of the UK’s largest listed companies making it clear how much importance they place on driver safety, I think it’s fair to expect others to follow suit.

Naturally, it’s very easy to become biased on stocks one already owns. However, with the company being the global leader in this space, I do find it hard to be neutral on the outlook for this part of Seeing Machines’ business. 

Great outlook

Of course, today’s agreement is just one reason why I continue to hold the stock. Seeing Machines actually has its fingers in many pies at the moment. And, for me, the Guardian part of the business is actually the least exciting part.

The one that really grabs my attention is the huge earning potential of its automotive division. Back in August, the penny stock reported on the commencement of royalty revenues as over 100,000 vehicles loaded with its driver monitoring system (DMS) tech left showrooms. With the introduction of new legislation likely to boost demand, the company has already identified more than A$900m in potential revenue that it could/will now bid for.

On top of this, Seeing Machines has also been making moves into the aviation sector. This is the beauty of distraction-detecting tech — the sheer number of potential applications is hard to fully comprehend.

Long-term winner?

Naturally, any investment involves risk. Seeing Machines is no exception. Despite having a market cap of around £350m, this AIM-listed business is still unprofitable. This makes it particularly susceptible to general sell-offs. During the last market crash, for example, SEE’s share price fell from 5.5p in January 2020 to just 1.7p in March. It’s now at 9.8p, highlighting the huge volatility penny stock hunters should expect. One also can’t discount the possibility of future cash calls further down the line.

Along with would-be nickel miner Horizonte Minerals, however, Seeing Machines is one of few shares in my portfolio that I consider to be both very risky but also worth holding for the long term.

Time will tell if I’m fantastically right, utterly mistaken, or somewhere in between. For now, I’ll simply conclude that today’s news means I won’t be selling this penny stock anytime soon.  

The post This penny stock just signed a deal with Royal Dutch Shell! appeared first on The Motley Fool UK.

More reading

• Here’s how a small dividend stock ISA could produce £1,400 in passive income a year
• Here’s how Barclays shares could climb another 40%
• How to earn £596 a year in second income from 1 FTSE stock
• With the stock market at record highs, should I invest now or wait?
• How can investors aim to turn £100 a month into £6,515 in annual passive income?

Paul Summers owns shares in Seeing Machines Ltd and Horizonte Minerals. The Motley Fool UK owns shares of and has recommended Seeing Machines Ltd. 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.

With its valuation now at its lowest level for over 25 years, is this fallen giant too cheap to ignore? I think it depends greatly on how patient prospective investors are prepared to be.

Shell shares beat expectations

Like it’s similarly-battered FTSE 100 peer BP, Shell shares have been deeply affected by the plunging oil price in 2020. Billions of dollars of assets have needed to be written off by the company. 

Today however, Shell surprised on the upside. Adjusted earnings came in at $955m for Q3. While nowhere near the $4.77bn achieved over the same period in 2019, this is still better than the $638m in Q2. It’s also above what the market was expecting. 

Shell shares’ tough outlook

As encouraging as today’s news is, it seems fair to say that Shell still faces an upward struggle. Indeed, things could actually get even worse before they get better.

The ongoing pandemic is clearly the biggest near-term issue Shell shares face. The recent rise in infections around the world (particularly in Europe) has forced governments to re-introduce lockdowns. Although these new restrictions aren’t expected to last as long this time, they will still have an impact on Shell’s business. Put simply, fewer vehicles on the road leads to lower fuel sales and lower demand for oil. This means lower profits at Shell. 

Second, there’s the push away from fossil fuels and towards greener forms of energy. For its part, Shell is planning to focus on commercialising hydrogen and biofuels as well as energy for electric vehicles. It aims to be a “net-zero emissions energy business by 2050 or sooner.“

Nevertheless, turning this £70bn tanker around will cost a lot of money and Shell will need to be ruthless. In September, it announced that up to 9,000 jobs would be cut to make $2bn of savings. I wouldn’t bet against more being let go in the future.

Dividend cut

Up until recently, Shell shares presented as a solid pick for income seekers. Not cutting your dividend since the Second World War has a habit of doing that.  

Since the arrival of Covid-19 however, Shell has been forced to reassess its priorities. Quarterly payouts have been severely chopped. Today’s $0.17 per share compares unfavourably with the $0.47 per share awarded this time last year even if it does represent a 4% increase on that returned for Q2.

Having approved a new ‘cash allocation framework’, Shell now intends to distribute 20-30% of its cash flow from operations to shareholders once it’s brought its debt down to $65bn from $73.5bn. So, dividends could keep rising from here but I don’t think anyone should underestimate the challenges ahead. 

Bottom line

With a tough outlook, Shell shares don’t feel like a compelling buy at the current time. Notwithstanding the fact that (like all stocks) it could rally like the clappers in the event of a vaccine breakthrough, I’d be inclined to look elsewhere in the FTSE 100 for my income fix. Those looking purely for big capital gains could be in for a long wait.

Royal Dutch Shell shares look cheap and yield almost 7%, but today’s gains may prove temporary.

The post Are Royal Dutch Shell shares now too cheap to ignore? appeared first on The Motley Fool UK.

More reading

• Here’s how a small dividend stock ISA could produce £1,400 in passive income a year
• Here’s how Barclays shares could climb another 40%
• How to earn £596 a year in second income from 1 FTSE stock
• With the stock market at record highs, should I invest now or wait?
• How can investors aim to turn £100 a month into £6,515 in annual passive income?

Paul Summers 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.

With the stock down roughly 25% in value since last summer, should Foolish investors run for the exits? I’m not so sure.

Before explaining why, let’s take a closer look at today’s announcement.

Tough times

Due partly to lower oil and gas prices, “net income attributable to shareholders on a current cost of supplies (CCS) basis” – the company’s jargon-tastic preferred measure of profit – fell 48% to $2.9bn compared to Q4 in 2018. For the full-year, the same measure fell 23% to $16.5bn. This was below what analysts were expecting, which goes some way to explaining today’s share price capitulation.

CEO Ben van Beurden tried his best to put a positive spin on things, stating that the company had delivered a “competitive cash flow performance in 2019 despite challenging macroeconomic conditions”.

He went on to say that the business was committed to completing its $25bn share buyback programme (roughly $15bn of shares have been purchased so far) but that the pace of this depends on how the global economy behaves and “further debt reduction”.

Personally, I like it when management are prudent. It’s when they promise the world I start to worry. 

Stick or twist?

Shell’s share price is now down to levels not seen since 2017. That implies there’s value to be had. 

But let’s not kid ourselves – no one buys Shell’s stock with the expectation of making a huge capital gain. The firm’s chief attraction has always been its ability to shower investors with dividends ($3.7bn was returned over the last quarter).  

Assuming the situation does not change dramatically, Shell is currently forecast to pay a total of around 187 cents (144p) per share in 2020. Taking today’s share price wobble into account, that gives a stonking great yield of almost 7% – far higher than the vast majority of those companies that make up the market’s premier league.

Clearly, no company can offer absolute certainty when it comes to their payouts and Shell is no exception. Risks include global growth slowing by more than expected and/or trade tensions between the US and China resuming. Although too early to say, the coronavirus outbreak in China could also put further pressure on the oil price. 

Another hurdle Shell faces is the need to adapt its business to reflect the growing demand for renewable energy, requiring increased investment (with implications for dividend growth). 

Despite all this, the fact that the company has famously not cut its cash returns since the end of the Second World War should not be underestimated. I doubt anyone would want such an action on their CV, even during times of strife. As such, you can bet that the management will pull out all the stops to stay in investors’ good books. The fact that this year’s payout is likely to be covered 1.4 times by profits also provides some reassurance.

All told, I suspect Shell is worth sticking with for the income it offers but only as part of a diversified portfolio. And if tracking the fortunes of 20 or so shares sounds like hard work, there are far easier ways for investors to generate a second income stream. 

The post Is the Royal Dutch Shell share price a risk worth taking for its near-7% dividend yield? appeared first on The Motley Fool UK.

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Paul Summers 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.

I’m not so sure. The City is full of really clever people with access to even more information than we have. But many actively-managed funds lag the market, and very few consistently outperform it.

KISS

These days, what I aim to do when investing is to avoid trying to be too clever. Instead, my goal is to follow the classic design principle, Keep It Simple Stupid — or KISS.

The phrase is said to have originated with an engineer working for US military aircraft firm Lockheed in the 1960s. What it means is that a well-designed system should be as simple as possible. Needless complexity means there’s more to go wrong and will be harder to fix.

I reckon KISS could be a good ethos for many investors. In this piece, I want to highlight two FTSE 100 dividend stocks I rate as good KISS buys.

Why Lloyds?

Ten years after the financial crisis, banking stocks are still a tough sell for many investors. It’s easy to see why — many banks nearly went bust in 2009.

They’ve since been forced to pay out billions in misconduct charges and PPI compensation. Lloyds Banking Group (LSE: LLOY) alone has forked out a staggering £19,425m in PPI payouts.

Numbers like this are hard to believe. But they’re now mostly in the past. And the reality is, as far as anyone can tell, regulatory changes have made banks much safer and better-funded than they were a decade ago.

It’s worth remembering that the 2008 financial crisis was the worst and biggest economic shock to hit the UK since the depression of the 1930s. Historically, this kind of event has been rare. Although profits tend to fall in recessions, large banks such as Lloyds have generally been reliable income investments.

In my view, Lloyds looks reasonable value at the moment. At the time of writing, the bank’s stock was trading on 7.3 times 2019 forecast earnings and at a premium of about 10% to its tangible net asset value of 53.4p. For a profitable, dividend-paying bank, I don’t think that’s expensive. With a forecast dividend yield of 6%, I’d be happy to buy today and hold for life.

You can be sure of Shell?

The other KISS stock I’d like to suggest is a company I already own myself, Royal Dutch Shell (LSE: RDSB).

Sentiment towards the oil and gas giant is understandably mixed, given concerns over climate change. But demand for oil-based fuels isn’t going to dry up tomorrow. And Shell is now making concrete and public plans for the next stage of its evolution towards gas, chemicals and renewables.

This strategy is expected to generate very high levels of free cash flow. As my colleague Rupert Hargreaves explained, it looks like Shell may return half of its current market-cap to shareholders by 2025.

The shares may get cheaper at some point in the future. But I think the stock’s 5.8% yield is worth having and suggests a reasonable valuation. I remain a long-term buyer and hope to add more over the coming years.

The post Why I’d buy the Lloyds share price and hold it for life appeared first on The Motley Fool UK.

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Roland Head owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Lloyds Banking Group. 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.