When I started with dividend investing I always pictured Royal Dutch Shell as one of the corner stones of my portfolio. Historically considered to be a typical widow-and-orphan stock, it is as far as I know the only stock that has its own adage: Never sell Shell.
One of the reasons for this is because Shell is one of the few European companies with such a long record of rising dividends. While past performance is no guarantee for the future, it’s interesting to see that Shell’s history shows it takes a world war for this company to cut its dividend.
It’s hard to verify this myself as Shell’s historical dividend payment overview on the company’s investor page doesn’t go back further than 2006 but from what I’ve been able to gather it appears the last dividend cut was in 1943 when a large number of the company’s assets were controlled by the Japanese and/or destroyed during the war. Going back further, it appears the only other dividend cut in the last 100 years was during similar conditions (World War I).
Recently Shell’s stock has been taken a beating for a variety of reasons, including worries the company may have overpayed for its planned acquisition of BG Group and doubts about the company’s drilling plans in the Arctic. As a result, it’s once again possible to buy Shell at a dividend yield that exceeds 6%! It doesn’t happen a lot that you can buy shares of one of world’s largest corporations with such a juicy dividend so that’s the reason why I’m adding to my position today.
Obviously, investing in oil companies right now is a bet on higher oil prices. While supermajors like Shell can weather out a storm, the company will be in trouble if oil prices remain depressed for a longer than expected timeframe. In fact, Shell based its calculations for the purchase of BG Group on oil returning to $90/bbl in the coming years.
These aren’t easy times for Shell but this is a company that will do whatever it takes to protect it’s sacred dividend history. “We have a very long-term dividend policy and I’m not minded to change that,” CEO Van Beurden said in an interview in January with Bloomberg Television. “The dividend is an iconic item at Shell and I will do everything to protect it.” Should things get worse, Shell will likely explore alternatives like further cutting capex, selling assets and/or taking on more debt to at least maintain its dividend.
When Shell announced the acquisition of BG Group in April, the oil major pledged to keep its dividend steady at $1.88 per share this year and at least that amount in 2016. While significant dividend growth seems unlikely in the near-future, this stock has such a great entry yield of 6.28% that I’ll gladly wait for things to get better.
I bought 51 shares of RDSB, after dividend taxes this purchase adds $71.91 in forward annual dividend income. Ceteris paribus, my forward annual dividend income now stands at 899.41EUR.