What You Were Selling Last Week: Royal Dutch Shell

Oil supermajor Royal Dutch Shell was in number eight spot.

Jon Wallis
Jon Wallis
Mar 13, 2013 at 12:00AM
Energy, Materials, and Utilities

LONDON -- One of Warren Buffett's famous investing sayings is "be fearful when others are greedy and greedy only when others are fearful" -- or, in other words, sell when others are buying and buy when they're selling.

But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with some ideas for investments that are past their prime

So, in this series of articles, we're going to look at what customers of The Motley Fool ShareDealing Service have been selling in the past week or so, and what might have made them decide to do so.

Royal Dutch Shell
's (LSE:RDSB) (NYSE:RDS-B) share price performance has certainly been rather lackluster over the past year -- it's down around 2% compared with the FTSE 100's 8.5% increase. That may be one reason it occupied the number eight spot in the latest "Top Ten Sells" list*.

Notwithstanding its recent doldrums, Shell doesn't seem too bad a proposition. It's on a price-to-earnings (P/E) ratio of around 8.4 (based on forecast earnings per share), which seems cheap for the U.K.'s biggest blue chip. But Shell's earnings may unduly flattered by the high ratio of its capital expenditure to its associated depreciation -- a result, at least in part, of expenses being spread thinly over the lifetime of long-term projects.

While it's legitimate accounting, it's a "trick" that can only last so long, and at some point earnings will have be delivered to justify the money spent -- and with around $100 billion being spent over the next three years, that's quite a lot to deliver. If the earnings growth doesn't materialize, Shell could turn out to be a much more expensive buy than it would like to seem.

Many people will have bought Shell as much for its dividend as for any expectation of significant capital growth. At present, Shell's yield is standing at about 5.2%, which is comfortably above the FTSE 100 average. But it's looking ever-harder for Shell to grow its dividend over the coming years -- current estimates only put it at around 5.4% in 2014. So, while its yield is hardly shabby, maybe some people are now looking for an even better dividend payer?

A high-quality income share
And that's exactly what the Fool's top analysts have been buy doing. If you're a seller of Royal Dutch Shell, or are just looking for an attractive high yield share, then this particularly high-quality income opportunity might be for you.

Indeed, the company in question boasts a 5.7% dividend yield and impressed Fool analysts so much they've named this share "The Motley Fool's Top Income Stock for 2013"!

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* based on aggregate data from The Motley Fool ShareDealing Service.