Is Royal Dutch Shell plc still a strong buy after Q3 results?
With the advent of electric vehicles, many believe the end is nigh for major oil producers such as BP and Royal Dutch Shell(LSE: RDSB). I'm certainly NOT one of them. In fact, I'm as bullish as ever on the future of oil. The Chinese and Indian economies are still growing at a blistering pace when compared to our own, and demand for the black stuff in these countries is actually growing.
With the price of a barrel of crude being so volatile over the past few years, it's little wonder that many investors shun the oil & gas sector all together, but they do so at their peril. Even when Brent Crude was trading at below $30 per barrel, BP and Shell were still happy to reward shareholders handsomely just for owning their stock.
Earlier this week, London's second largest oil major, BP, beat all expectations, announcing a doubling of profits to $1.87bn, together with a share buyback programme to offset the diluting effect of scrip dividends, which are paid in shares. As predicted, the quarterly dividend was held at 10¢ per share, thereby giving shareholders a mouth-watering 6% return.
Today it was Royal Dutch Shell's turn to hit the headlines, and it didn't disappoint. The Anglo-Dutch oil major saw its profits soar to $4.1bn during the three months to the end of September, well ahead of analyst's consensus forecasts of $3.6bn, and a massive 47% higher than the $2.8bn posted for the same period in 2016.
CEO Ben van Beurden argued that the strong performance was further evidence of Shell's growing momentum, and it strengthened his belief that the group's strategy was working. And I would have to agree, with all three of Shell's major businesses making resilient contributions to the strong results.
The group's Upstream activities generated almost half of the $10bn cash flow from operations excluding working capital during the quarter, at an average Brent oil price of $52 per barrel. And this was complemented by good cash contributions from both Downstream activities and the growing Integrated Gas business.
Generating cash is particularly important for Shell, battling to maintain its enviable record of not having cut its dividend since the Second World War, while also paying off debts associated with the $50bn takeover of rival BG Group last year. With the oil price creeping up above $60 per barrel this week, its highest level in more than two years, to me the dividend looks safer than it has done for quite some time.
With the quarterly payout maintained at 47¢ per share, a rising oil price, and a more efficient business, I can't see any reasons for income seekers to pass up on Shell's plump 6% yield. So is the UK's biggest oil company still a buy after these results? You betcha.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended BP 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.