New buy: Still more RDSB

With Royal Dutch Shell still trending down I found it too hard to resist so I pooled some fresh money together with the cash from my Baxter sale and added some more RDSB to my already overweight position.

I bought 60 shares of RDSB, at the moment I bought them they traded at an incredible 6.54% dividend yield! After taxes this purchase adds US$84.6 in annual dividend income. There’s going to be little or no dividend growth in the coming years but with such a nice entry yield I can gladly wait for things to return to normal.

A lot of my dividend income is declared in US dollars or British pounds so it’s pretty hard to make projections but at present currency exchange rates this puts my forward annualized dividend income at 953.3EUR. My short-term goal is to break the 1000EUR mark, hopefully I’ll hit it within the next two months.

Shell Prelude Ship

While RDSB is very tempting at the moment I’m not sure if I’m going to add more in the coming months. I have a lot of faith in this mammoth company but with a weight of 19.13 percent Shell is very overweight in my smallish portfolio. And when I look at dividend income it’s even worse as Shell now accounts for just over 30% of my forward dividend income, not very healthy but the portfolio is still in its early days.

When I started dividend investing last year I pictured Shell as one of my key holdings but in the long run its weight in my portfolio has to go down a lot, especially because I already have another stock (PM) that is pretty overweight in my portfolio.

For the next purchases this year I plan to turn my attention to the consumer staples and healthcare segments. I definitely want to increase my stakes in Coca Cola (KO) and Unilever (ULVR), as well as initiate position in firms like PepsiCo (PEP),  Johnson & Johnson (JNJ), AB InBev (ABI), etc.

Shell Gulf of Mexico rig

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8 thoughts on “New buy: Still more RDSB

    1. Dividends Are Coming Post author

      Yeah I’m starting to feel a little uncomfortable putting such a large allocation into just one oil & gas major but if it stays at this level or slips even further chances are I’m going to load up one more time.

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  1. Geblin

    Hi Dividends are Coming,

    Seems like a solid addition to your portfolio. I also like RSBD and I did manage to get some shares with a 6% + yield.

    I’m glad to have you as a fellow shareholder.

    Cheers,
    Geblin

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  2. ambertreeleaves

    I have RDS.A in portfolio. Main reason to go with this one is that there are options on the stock. I wanted to experiment with covered call and have picked shell for that.
    I now understand that RDSB is better from a dividend point of view, as there is no tax in the UK on dividend. Never too late to learn!

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    1. Dividends Are Coming Post author

      Yeah these share classes can be a bit confusing sometimes but from the Belgian point of view the B class is definitely better, Shell ‘s A shares are double taxed and the B shares aren’t. To add further to the confusion, if you participate in the scrip dividend you get RDSA shares in your account even if you’re holding the B class.

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  3. MidcapAdvisor

    I am surprised that there’s no mention of the Oil situation in this blog. For instance, for me I would read ‘great yield’ as risk of divis falling in the future. How likely is it that Shell payout less divis as profits fall due to the price of oil falling off a cliff lately? I expect you have information on this ? Oil stocks and commodities have taken a pounding as the economic situation warrants it, furthermore oil production is historically high and may get higher as the Iran situation improves. Hence, for me I would not say solid buy, I would see capital losses around the corner. If the thought of Shell cutting divis is unheard of, even in these strange times that we live, then fair play, if not then I am surprised this does not feature as part of the risk evaluation. All the best and good luck

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    1. Dividends Are Coming Post author

      Most of the posts on my blog aren’t really intended as in-depth stock analysis, I see it more as a way to keep track of my portfolio and to keep in touch with the online dividend growth community. At present the stock is overweight in my portfolio but over time its position will shrink as the portfolio grows larger.

      Oil is in a difficult spot right now, looking back I started buying RDSB too early but I trust the company will be able to weather the storm as it always did in the past. I have no idea what the price of oil and gas will be several months from now, it’s indeed likely it will be lower than today but I can’t imagine it will stay this low for years. The supply glut and the lifting of the Iran embargo may or may not be priced in, I don’t know. Oil has always been a wild market, for all we know OPEC may suddenly decide to cut supply or some new conflict may send the price of oil soaring.

      High dividend yields are indeed usually a big warning flag but Shell’s long history puts me at ease, this is a stock I want to hold for decades. The earnings release is on Thursday, I’m looking forward to read the numbers. Last quarter they posted adjusted net income of $3.2 billion, IIRC this amounted to a payout ratio of around 90%. In terms of free cash flow it’s worse but a lot depends on the future price of oil of course and in smaller part on how much synergies Shell can generate from the BG purchase.

      In the short term Shell’s dividend looks relatively safe to me, we can’t always believe what companies say but Shell’s dividend is an iconic item. CEO Ben van Beurden pledged he will do everything to protect it, the current plan is to keep it at the same level this year and at least the same amount next year.

      If oil prices stay this low or go even lower beyond 2016-2017 the company may run into trouble but longer term I think they’ll be OK.

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