British oil and gas giant Shell (SHEL) is nearing a buy point while offering strong fundamentals and a growing dividend.
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For investors searching for a conservative option that provides yield in the energy sector, there is a lot to like about Shell.
Due to its maturity in the industry and sheer size, Shell offers stability. Long-term debt is rated firmly in investment grade territory, with an enviable A+ from S&P Global.
A current annualized dividend yield of 3.7% is also respectable and is well above the 1.5% average of the S&P 500. The dividend saw its first cut since the Second World War in 2020.
Since then, yields have recovered nicely with a 15% dividend increase this year; bringing the dividend to 66 cents quarterly. The company aims to increase the dividend by 4% a year.
Dividend Stock Has Record-Breaking 2022
After struggling at the outset of the pandemic Shell had a fantastic year in 2022 generating a record $40 billion in profit, seeing EPS more than double from $4.98 to $10.86.
Moderating energy prices in the first half of this year caused expectations for earnings to stabilize at $7.31 a share for 2023 before increasing slightly to $7.69 in 2024.
While boasting solid results, environmentally conscious investors may do well to steer away from Shell.
It has made an ambitious target of becoming carbon neutral by 2050. However, the company has shelved its multimillion dollar carbon offset plan without putting anything in its place, making the target increasingly unattainable.
While Shell’s most immediate future will depend on the rise and fall of energy prices, the lack of a climate plan could cause problems in the longer term as European governments increasingly tighten guidelines for climate targets.
Shell currently ranks second in IBD’s Integrated Oil & Gas industry group. Shares are forming a flat base, trading close to a 63.39 buy point identified by IBD MarketSmith pattern recognition.
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