Should You Buy Royal Dutch Shell Today?
Mar 21st 2013 4:28PM
Updated Mar 21st 2013 4:32PM
LONDON -- I believe that oil giant Royal Dutch Shell is an excellent choice for investors looking to energize the income from their share portfolio.
The company operates a progressive dividend policy that should continue to yield payouts well above the mean offered by the U.K.'s 100 largest companies. Meanwhile, a meaty capital expenditure program should turbocharge earnings over the long term.
Juicy dividends primed to swell
Royal Dutch Shell is particularly appealing to income investors owing to projected dividend increases in coming years. A payout of 105 pence per share last year is set to leap 11% in 2013, to 116 pence, according to broker forecasts. The payout is then expected to rise to 119 pence per share in 2014. And projected dividend yields of 5.2% and 5.3% for this year and next are way ahead of the 3.5% FTSE 100 average.
Investors can also take comfort in solid dividend cover of 2.3 times for the next two years, above the widely held security benchmark of 2 times. As well, the oil play continues to return cash to its shareholders through its ongoing buyback program.
Heavy capex spend to propel future growth
Royal Dutch Shell announced in January that earnings on a "current cost of supplies" basis fell to $27 billion in 2012 from $28.6 billion last year, although fourth-quarter earnings rose to $7.3 billion from $6.5 billion.
I believe that rising exploration and production expenditure should deliver excellent growth further out. The firm -- which currently has 30 new projects under construction across the globe -- has allocated capex spend of between $120 billion and $130 billion up until 2015.
As well, a significant reduction in gearing to the lower end of the company's target, to 9.2% as of the end of 2012 versus 13.1% at the same point in 2011, could herald further capex investment.
Royal Dutch Shell continues to throw off lots of cash, enabling it to boost expansion and maintain shareholder payouts. Cash flow from operations in 2012 leapt to $46.1 billion from $42.7 billion, and the company estimates that cash flow could be around 50% higher in the 2012-2015 period than during 2008-2011.
City brokers anticipate earnings per share falling 5% in 2013, to 272 pence, before edging back into positive territory next year to post 2% growth to 276 pence.
The oil behemoth currently trades on P/E ratios of 8.2 and 8 for 2013 and 2014 respectively, which I consider extremely cheap given the firm's stellar growth prospects.
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The article Should You Buy Royal Dutch Shell Today? originally appeared on Fool.com.Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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