Potential share buybacks and good dividends may look promising, but any fall in the oil price could raise questions.
Royal Dutch Shell (RDSB) to continue pumping money to investors
- Shell refreshed its strategy for the energy future as it builds on strong foundation.
- It outlined plans to increase spending and shareholder returns after 2020.
- We continue to recommend the shares as a medium risk ‘buy’ for income investors.
This morning, Royal Dutch Shell refreshed its strategy for the energy future and is now on track to deliver its 2020 commitments. With thoughts on peak oil creeping ever closer and predictions of the oil price more difficult than who will be the next Prime Minister, what should investors take from Shell’s strategy update through to 2025?
Shell’s expected cash delivery creates the potential to distribute $125bn or more to shareholders over the five year period of 2021-2025 and with many attracted to the 5% plus yield of the stock, the obvious positive is the improved outlook of cash flow to around $35bn based on $60 per barrel which should continue to underpin good dividends or share buybacks. The proposed increase in capital expenditure to around $30bn a year may act as a balance to the above.
Our View on Royal Dutch Shell - Buy
Shell shares were down in early trading following the announcement. However, the CEO talks of an “energy transition” and is confident of the company being well-placed to reward investors. The outlook therefore appears to be promising but investors should be wary that any material fall in oil prices could once again raise questions about the company's ability to maintain its dividend. We continue with our Buy recommendation on the stock for investors seeking income and willing to accept a low to medium level of risk.
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