Is It Still Safe to Buy Royal Dutch Shell?

I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.

So right now I'm analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy .

Today I'm looking at oil major Royal Dutch Shell  (LSE: RDSB  ) (NYSE: RDS-B  ) to determine whether the shares are still safe to buy at 2,300 pence.

So, how's business going?
Shell has fallen out of favour with the market recently as investors worry about the company's plans for future growth. In particular, investors have been anxious about the company's failed drilling program in the Arctic.

However, I believe these concerns are unfounded. While the company's plans for expansion have failed in the Arctic, Shell's operations around the rest of the world are still highly profitable.

For example, Shell's refining operations, which account for 30% of the company's revenue, registered record profits during the first quarter of this year. Earnings from refining operations exploded 50% alone, offsetting a 6% profit fall from oil production.

Furthermore, outside of the Arctic, Shell continues to invest for the future by selling underperforming assets and reinvesting in new developments. Indeed, during the first quarter of this year, the company raised $600 million from selling unwanted assets and spent $8.8 billion enhancing up to 30 new projects.

Additionally, Shell is almost debt-free, with debt to equity level of only 9%.

Expected growth
Unfortunately, while the company continues to invest for future growth, many City analysts expect Shell's earnings to remain almost unchanged for the next two years. City forecasts currently predict earnings of $4.19 per share for this year (a fall of 2%) and $4.23 for 2014.

Shareholder returns
Shell is well known for its solid, well-covered dividend and it appears this payout is not going to stop any time soon. Indeed, during 2012, Shell's net profit was $26.5 billion, of which only $9 billion was returned to shareholders.

In addition, Shell's dividend yield is currently 5% -- larger than that of its peers in the oil and gas producers sector, which currently offer an average dividend yield of 3.9%.

Surprisingly, despite being the second-largest publicly traded oil company in the world, Shell still trades at a discount to its peers. Shell currently trades at a historic price-to-earnings (P/E) ratio of eight, while its peers trade on an average historic P/E of around nine.

Foolish summary
So overall, based on Shell's current discount to sector peers, solid dividend and the company's plans for future production growth, I believe that Royal Dutch Shell still looks safe to buy at 2,300 pence.

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As well as Royal Dutch Shell, I am also positive on the five FTSE shares highlighted within this exclusive wealth report.

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In the meantime, please stay tuned for my next FTSE 100 verdict.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2013, at 7:17 AM, isant wrote:

    Many people lost a lot of money recently when a Dutch bank was taken over by the Government in what are still not completely clear circumstances. I wouldn't invest again in Holland until things become more clear.

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Related Tickers

9/30/2016 12:02 PM
RDSB $2002.73 Down -19.27 -0.95%
Royal Dutch Shell… CAPS Rating: No stars
RDS-B $52.83 Up +0.10 +0.19%
Royal Dutch Shell… CAPS Rating: ****