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Shell (LSE: SHEL) have been one of the best sources of dividend income in the FTSE 100 for decades, but lately they have been very volatile.
They collapsed in March 2020, in the wake of the initial Covid shutdown, when oil fell below $20 a barrel. As tankers sailed the world looking to offload unwanted cargoes of black gold, Shell shares hit a low of 1,062 pence.
A good time to buy cheap oil stocks
We now know that this was a fantastic buying opportunity for contrarian investors. Today Shell is trading at 2,459 pence. Anyone who bought your shares three years ago would have a 131.5% profit. That would have turned a £1,000 investment into an impressive £2,315.
In practice, they would have done even better than that, since they would have also reaped dividends along the way.
Shell was a true dividend aristocrat, known for never having cut its dividend since the war, until covid ruined its proud record. In 2019, his dividend per share of his was $1.88. That fell to 65 cents in 2020, but it’s slowly being fixed. In 2021, management raised the dividend to 89 cents, then to $1.04 last year.
Investing £1k in Shell three years ago would have given me 94 shares. Using my basic calculations, the dividends would have totaled just over £200, taking the total three-year profit past the £2,500 mark. Sadly, I didn’t buy Shell’s three years ago, but I wish I had.
The pandemic was unprecedented. Investors were running scared, not just me. No one knew how many people would die or how long the lockdowns would last. Those are my excuses for not acting, but I still should have known better.
I’ll take the next opportunity
I’ve been writing for the Fool long enough to know that it pays to keep a cool head when panic strikes and take the long view. If he had put that philosophy into practice, he could have seized a once-in-a-lifetime opportunity to buy Shell on the cheap.
Naturally, buying cheap stocks doesn’t always pay off. They can be cheap for a very good reason. And dividends are never guaranteed. Buying companies like Shell will always involve capital risk.
Its shares had a volatile 2022 but in a good way this time, with the share price skyrocketing due to the energy shock. They are up 29.18% in the last 12 months, and the increase would be higher if it weren’t for the current banking crisis.
They fell 4.49% yesterday as world markets sold off more swiss credit fears. So it looks like we may have another buying opportunity on our hands.
Shell looks very cheap today, trading at just 6.8 times earnings. Investors who got used to stocks returning 5-6% may be disappointed by its 3.8% return, but there are positives. Firstly, this is covered 3.9 times by revenue, giving room for progression. The yield is forecast to hit 5.8% next year, with a slightly stronger hedge of 3.9x. So that he could jump again.
Unfortunately, I don’t have enough money in my trading account to buy Shell today. But I will be watching its progress carefully, and when I have the cash, I will take advantage of any further weakness in the stock price to buy. So I’ll keep it for years, and ideally, decades.
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