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Shell (LSE:SHEL) shares used to offer one of the most reliable sources of dividend income worldwide. FTSE 100. That was before the pandemic forced it to cut payments to shareholders for the first time since the war.
The dividend is back, but it's not the monster it used to be. I had become accustomed to the oil giant's shares returning 5% or 6% a year, but today they return only 4.01%. The good news is that the board is committed to increasing the dividend each year, with the yield expected to reach 4.22% in 2024 and 4.47% in 2025. Which is a bit closer.
Still a stock with great dividends
Any long-term Shell investor who is disappointed by its dividend can instead admire its capital gains. Shell's share price has risen 64.38% in three years, mainly due to the energy shock. The impact is fading, but is still up 12.79% over a year.
As with any commodity stock, revenue, earnings and share price performance tend to be cyclical. My goal is to counteract this by buying when the sector is out of favor. Today could be an opportunity, as Shell shares trade at just 7.7 times earnings.
Where stocks go next is partly due to the price of oil. While energy demand slowed due to the mild European winter, Brent crude oil has just climbed back above $85 a barrel. Higher demand from China and falling US crude stockpiles are behind the rise. Where he goes next no one knows. I won't even bother making one myself.
I am looking for higher returns
If you wanted to generate £100 of income per month (or £1,200 per year), you would need to buy 1,120 Shell shares. At the current share price of 2,550p, that would cost me £28,560. Now, that's a lot for me to put into one stock. Unfortunately, I only have limited funds at my disposal. It would leave my portfolio too exposed to swings in energy prices, leaving me with little money to carry with my other FTSE 100 favourites.
At most, I would consider investing £5,000 in Shell. Unfortunately, this would only give me a very small income of £211 a year. At least it will increase over time. Little by little yes, but with a firm step.
Shell's adjusted profits fell 29% last year to $28.25 billion. In addition to the drop in the price of oil, it was affected by higher operating expenses, lower refining margins and lower marketing margins for crude oil and petroleum products. However, 2023 ended on a high, with fourth-quarter earnings rising 17% year-over-year to $7.31 billion.
My wallet has a shell-shaped hole in it. However, despite its attractions, I won't be filling it anytime soon. Other FTSE 100 stocks will give me returns of 6%, 7% or more, and I will buy them first for higher returns today. I know I should buy Shell, but unfortunately I can't buy everything I want.
