So I was browsing around looking for some sweet dividend investments and suddenly Royal Dutch Shell (RDS), big European Oil Giant, came into my view.
In this chart from Yahoo Finance you see the B-shares traded on the London Stock Exchange. I actually looks pretty interesting, just chart wise. You have this broad trading range around 2250. The stock felt pretty comfy there for several years until the big drop in oil hit hard in 2015 and drove RDS down something like 40% (like all the other big oil players at the time). And now nearly 3 years later it's again trading around this range.
So what's different this time?
Nothing special so far. BUT. During the slump the company started to cut back on costs aggressively, to stay profitable in a low oil price environment. And this comes in very very handy right now, because Oil Prices are rising again. WTI and Brent just hit their 2 year highs beginning of this weak.
And this means profits. JUICY profits. If you cut back costs aggressively to survive with low oil prices and suddenly oil starts to surge, you get huge windfall profits, because
- your costs stay the same, so every $1 more for a barrel is a $1 more directly in your pocket
- some of your competitors went bust during the slump, only the strongest came out of this sudden price fall relatively unscathed
The market overall is still pretty negative on the big oil companies, which makes it even more compelling to think about buying right now.
And then there is the DIVIDEND
We established some good reasons why earnings might surprise MR. MARKET (i.e. fantasy lagging analysts) and thus cause a surge in price or even RDS going BALLISTIC. But that's not all. If you're looking for passive income, this company has a treat for you. With the price right now they pay a whopping 6.1% in dividends.
YEAH you heard right - 6.1%
In words: SIX point ONE PERCENT.
Usually such high yields come with a high risk of the company not being able to sustainably pay these dividends for the longer term. But RDS is in good shape (again, they used the slump to slim down unnecessary pounds and came out a cost beauty).
What Do You Think - Cast Your Vote In The Comments
a) You're right, this is an amazing opportunity!
b) Dude, you got it all wrong! This is a TRAP! Fossil fuels are on the retreat, RDS is doomed long term.
c) Nothing from the above, this stock is just lame and will stay around 2250 forever...