Why Royal Dutch Shell plc is perfect for my ISA

Shell petrol station

Royal Dutch Shell(LSE: RDSB) is one of my favourite large caps. The company's impressive dividend record, coupled with its position in the oil & gas market, makes it the perfect long term investment, as the chances of the business failing to achieve results in the long term are slim. 

Indeed, even though the company's shares haven't produced much in the way of capital growth over the past few years, investors have been rewarded via the way of Shell's dividend payout. Since the beginning of 2014 (and including an estimated Q4 2016 payout of 37.1p per share) investors have received a total of 350p per share in dividends. This substantial cash return means the total return of Shell's shares between the beginning of 2014 and 2017 is around 19%, not bad considering over the same period the FTSE 100 returned 9.6%. 

Shell's outstanding income returns shouldn't come to an end anytime soon, and that's why I believe the company is one of the best stocks to include in an ISA. What's more, one set of City analysts believes that Shell's shares could rally by as much as 25% this year, as the company completes "a year of delivery." 

A year of delivery

Analysts at Barclays believe 2017 will be the year that Shell's work over the past decade finally starts to pay off. The largest influence on the firm's growth will be the contribution of BG, which management decided to acquire at the outset of the oil downturn. 

At the time, the deal attracted plenty of criticism, but now investors are starting to believe it was the right decision. Barclays' team believes that Shell's gearing will start to fall this year as asset sales complete and this should rebuild the market's confidence in the dividend. Further, the integration of BG is now complete, and there should be no further costs relating to the deal -- only extra profits. 

As Shell pays down debt and margins widen as synergies flow through, Barclays' analysts believe shares in Shell will recover to the 2,750p level. However, one variable that no one can predict is the oil price. 

Oil outlook 

Shell's outlook is fixed to the oil price, which means the company's outlook is, to some degree, out of management's control. Granted, management can try to lower costs to help widen margins at low oil prices, but Shell's cost of production is still above $50/bbl which doesn't bode well for growth with oil where it is today.

Having said that, over the past four years Shell has remained relevant by cutting costs and using profits from its downstream operations to cover upstream losses. With costs significantly reduced from where they were in 2014, and relatively stable oil prices, the company is better positioned for growth than it has been since the downturn began.

The bottom line

I believe that Shell is well-placed for growth in 2017, and as the firm starts to reduce its gearing, income investors should regain confidence in its dividend. 

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Rupert Hargreaves owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Barclays and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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