Royal Dutch Shell (RDSB) to continue pumping money to investors

Potential share buybacks and good dividends may look promising, but any fall in the oil price could raise questions.

Article updated: 4 June 2019 1:00pm Author: Graham Spooner

  • 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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All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FSA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.

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