However, the rally is showing signs of running out of steam. The price of Brent crude oil has fallen back from a peak of $53 a barrel in October as investors await for specific details of OPEC’s proposed supply cut, and the pound has stabilised in the wake of better-than-expected UK economic data.

Overvalued?

The price-to-earnings ratio (P/E) – perhaps, the most popular valuation ratio used by investors – now stands at 42.9 times for the energy giant. So, are Shell shares overvalued?

That ratio compares very unfavourably to Shell’s historical 5-year average P/E of 13.6. However, the backward-looking ratio does not taking into account of its anticipated earnings recovery and so does not provide a useful picture of its future performance.

But, even on forward-looking valuation measures, the stock still trades at historically very high multiples. Its forward P/E ratios, which values the stock on its expected future earnings, is 31.6 times for 2016 and 17.3 for 2017.

Bulls vs bears

Does a forward P/E of more than 30 times scream overpriced or not?

It all depends on your outlook of Shell’s long term earnings potential. Bulls would say Shell’s acquisition of BG Group has made it a powerhouse in liquefied natural gas (LNG), controlling some 20% of the global trade in seaborne gas. It also has a bulked up presence in deepwater oil production and petrochemicals, which further differentiates it from its rivals.

Energy prices have stabilised, and Shell’s focus on capital spending, operating costs and synergies have helped its bottom line to recover from recent lows. The company could once again prove its mettle when energy prices recover.

On the other hand, a bearish investor could argue that Shell’s exposure to high-cost production means the company isn’t well placed to cope with the ‘lower for longer’ price outlook.

At best, low energy prices will pressure short term profits. However, there may be long term consequences too, if prices resume their downward trajectory – already, Shell’s reserves replacement ratio fell to -20% last year. This meant that Shell didn’t just failed to replace its production with new reserves, but reserves shrank beyond that because additional reserves were written off as they became uneconomic to produce in today’s price environment.

My take

With valuation multiples so high, I think it’s Shell’s 7.3% dividend yield that is supporting its shares. And because most analysts believe Shell is unlikely to abandon its dividend policy any time soon, valuations will likely remain high for some time.

That said, Shell’s dividends are not risk-free. The company’s dividend futures are currently pricing in a dividend cut of 14% for 2017. That’s not to say a 14% dividend reduction is set to take place next year, but that the market is valuing Shell’s future dividends at a 14% discount to its current quarterly payout of $0.47 per share.

Although the dividend may still be very tempting, Shell’s earnings multiples are extremely high relative to historic norms. A clear indication that profitability will recover to pre-crash levels may justify this, but I just can’t see that happening any time soon.

The post Are Royal Dutch Shell plc shares overvalued? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Oil still a bargain

Oil giant BP (LSE: BP) has seen its shares gain 17% since 23 June, to 452p, and they’re up 47% since their 2016 low point on 11 February. Part of the reason has been the recovering price of oil, of course, although Brent Crude has dipped back to $47 per barrel from over $50. But the latest spike is a direct result of the post-Brexit ‘flight to safety’, so are BP shares still worth buying at their higher valuation?

The long-term value of BP is entirely independent of whether the UK is a member of the EU or not, and so hasn’t really changed between 23 June and today. And I reckon the strong buy case for BP is unchanged by the recent price rise. Fundamentals don’t mean much this year, but forecasts for 2017 value BP shares at 15 times predicted earnings. Those forecasts have been strengthening over the past three months, with a pretty strong buy consensus on the shares now.

But the killer reason to buy, for me, is those tasty dividends that should yield over 6%. BP has repeatedly said it doesn’t want to cut its dividend, and with oil price prospects looking good over the next 18 months, I’d say it’s looking increasingly safe.

Miners too

The mining sector is the other obvious one that’s utterly indifferent to local politics of places like Europe, and it has also benefited from the rush to invest cash anywhere that doesn’t look risky. Shares in Glencore (LSE: GLEN) have gained 21% since the day of the vote, to 185p, and are up 161% since their lowest this year on 20 January.

It’s not all Brexit, as Glencore was already making firm progress in its recovery plan, disposing of assets to get its massive debt pile down to manageable levels. And with the outlook for worldwide demand and the price of commodities brightening, Glencore’s long-term future is looking safe.

The P/E multiple on Glencore shares is still a bit daunting, mind, at 47 based on this year’s expectations and dropping only as far as 33 on 2017 forecasts — and that’s without any meaningful dividends. A P/E to earnings growth ratio (PEG) of 0.7 based on 2017’s forecast 46% rise in EPS looks attractive, but that could well be a post-recovery one-off. A solid company, but I think I’d wait a while.

A bank, really?

Banking has been hard hit, with Lloyds Banking Group down 22% since the referendum and Barclays down 20%. But Asia-focused banks like Standard Chartered (LSE: STAN) have bucked that trend — its shares are up 4% since 23 June and 55% since 11 February.

With its top-level management team shaken up and serious steps being taken to turn its fortunes around, Standard Chartered could be an attractive long-term bet. While forecast pre-tax profits will still be well below those from recent years, after we’ve seen a decline from £6.85bn in 2012 to a £1.5bn loss last year, the £1.2bn profit pencilled-in for 2017 would drop the P/E down to under 16.

Whether the potentially lower risk makes Standard Chartered a better buy now than Lloyds or Barclays on forward P/E values of 8, that’s for you to decide.

The post Is it time to buy post-Brexit winners BP plc (+47%), Glencore plc (+161%) and Standard Chartered plc (+55%)? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• Down 10% to below £6 now! Here’s why Glencore’s share price looks a bargain to me anywhere under £12.13
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays and BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A great prospect

Having said that, Lloyds Banking Group (LSE: LLOY) looks to me like it scores on both counts. The Bank of England’s Prudential Regulation Authority allowed Lloyds to resume paying dividends in 2014, although the cash only amounted to a yield of 1% that year. But in 2015 the bank upped that to 3.1%, which was already back in line with the FTSE 100 average.

And if you buy Lloyds shares now, analysts think you’ll be in for a very nice yield of 6.3% this year on shares priced at 70.2p, rising as high as 7.4% in 2017! That would be covered by earnings around 1.5 times, which is probably comfortable enough. But I wouldn’t like to see it getting any thinner than that, and I don’t see dividends rising any faster than earnings beyond next year.

In its recent first-quarter update, Lloyds reported a “strong balance sheet” with a CET1 ratio up at 13%, and told us its net tangible assets per share were up to 55.2p from 52.3p at 31 December. Coming on top of Lloyds having reiterated its “progressive and sustainable ordinary dividend policy” at full-year results time in February, I see Lloyds shares as a great dividend prospect for now and for the future.

A growth share?

You might think I’m a bit mad for suggesting ARM Holdings (LSE: ARM) as a dividend share. After all, the chip designer is a classic growth investment, with ARM shares up nearly 700% over the past ten years, to 938p — and its forecast dividend yield stands at only a little over 1%.

But what that misses is the rate of growth of ARM’s dividends. Over the past four years, the annual cash payment has been lifted by 29%, 27%, 23% and 25% — and there are further hikes of 16% and 21% forecast for 2016 and 2017 respectively. Those rises might not be enough to keep up with Venezuelan inflation, but they wipe the floor with the UK’s paltry couple of percent.

If you’d bought ARM shares at the start of 2011 at around 460p, you’d have only received 0.6% in dividends that year. But if 2017 forecasts prove accurate, you’ll enjoy a yield of 2.7% that year — you’d be raking in cash close to the FTSE 100 average after just four years, from an out-and-out growth share. Just think what effective yields you’ll be getting if dividends (which are still more than three times covered by earnings) keep on going at this pace for another decade!

Oil is for ever

Finally I come to one that I think is a really obvious long-term cash cow, and that’s Royal Dutch Shell (LSE: RDSB). Shell hasn’t made the same commitment to maintaining its dividend throughout the price crunch as BP, but with oil continuing to creep back up and getting close to $50 a barrel again, it seems increasingly likely that the payments will keep on coming.

With Shell shares at 1,664p, forecast dividends for 2016 and 2017 would yield 7.7% per year, and that’s one of the best in the FTSE 100 at the moment. In fact, though Shell shares have fallen by 19% over the past five years, dividends have actually brought the total return back into positive territory with an 8% gain — and how’s that for the worst oil crisis we’ve seen in decades?

Over the long term, oil prices are going to recover and oil demand will keep increasing. And I don’t see how Shell could not keep on handing out oodles of cash.

The post 3 top dividends for the next decade: Lloyds Banking Group plc, ARM Holdings plc and Royal Dutch Shell plc appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended ARM Holdings, BP, and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Extra boost

Sometimes we can get an extra boost when we see share prices unfairly depressed, as has happened with BAE Systems (LSE: BA) in recent years. Back in 2011, with recession surrounding us and defence prospects looking a bit grim, BAE shares plunged as low as 253p and ended the year on a P/E of only a little over six — even for a depressed sector, that seemed ludicrously cheap.

Between that low point and today, BAE shares have soared by 90% to 480p, and dividends over the period would have made that up to around 125% — way better than a doubling, in just a bit over four and a half years.

How quickly might BAE shares double again? Let’s suppose the forecast return to EPS growth of 6% in 2017 is sustained and the dividend continues to yield around 4.5%, and also assume that the shares return to P/E in line with the FTSE 100 long-term average of around 14…

That’s perhaps a bit optimistic, but including dividends it suggests BAE shares could double again by the end of 2020 — that is, in just over another four years.

Oily double?

Speaking of depressed industries, we have the slump in BP (LSE: BP) shares. Well, I say slump, but BP shares have actually only fallen by 30% since mid-2014, to 364p, and two years of very high dividends would have reduced your loss to only around 15% — and if that’s the biggest share price disaster we ever face, we won’t be doing too badly at all.

But with Brent Crude now edging ever closer to $50 a barrel — it’s at $49.33 as I write — what does the future hold for BP shares? Forecasts suggest a a P/E of only around 13.5 for 2017, and they’ve been based largely on the low oil prices of the past couple of months. But analysts are already upping their forecasts in the light of the strengthening oil price, and are putting out a pretty strong Buy rating on BP shares.

The prospects for BP really depend on the future of the oil price and where it will stabilize. BP apparently believes that it will get back to $100 again in the future as demand rises, although in the short to medium term that would seem optimistic. But a number of pundits are suggesting around $75 in the medium term, and that could easily double BP’s earnings per share — and, assuming the P/E remains the same, that would double the share price.

Quad-play telecom

Now that BT Group (LSE: BT.A) is back in the mobile business through its acquisition of EE, and is doing nicely in the content-delivery stakes, it has to be the quad-play operator to beat. Over five years, BT shares have put in the best performance of the three here today, gaining 123% on share price alone with dividends taking that up to around 150%.

Even after that, and with dividends expected to yield 4%, BT shares are on a forward P/E for the year ending march 2018 of just 13.5. That’s likely due to a 7% fall in earnings on the cards for the current year, after 2015-16 saw EPS growth slow to 5%.

But I think using that as a valuation misses one key fact — BT has been in a high capital expenditure mode in recent years, and that’s set to drop as it goes about integrating its acquisitions and hopefully enjoying future cost savings as a result.

How long it will take for BT shares to double again is anybody’s guess, but I’d say there’s at least an evens chance it’ll happen in the next five years.

The post Which will double the quickest: BAE Systems plc, BP plc or BT Group plc? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• Just how bad could it get for the BP share price?
• 1 FTSE stock tipped to handily outdo Rolls-Royce shares by 2027
• BP shares are falling. But is the oil market actually tighter than investors think?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Look for the best dividend yields, I say, because as well as finding companies that have the cash to provide their shareholders with income, it can also highlight those whose shares are unfairly depressed.

Solid liquidity

I reckon Lloyds Banking Group (LSE: LLOY) offers one of the best, with a 6.8% yield forecast for the current year. I do feel a little caution over the rate of recovery of Lloyds’ dividend after the bank was first allowed to start handing out cash in 2014, and I wonder if a slightly more conservative approach might have been better for the long term.

But the speed at which the bank has hiked its dividends does suggest it is confident in the strength of its balance sheet, and its liquidity ratios all look solid. The dividend would be covered 1.7 times by forecast earnings this year, and the mooted rise to 7.9% next year would see 1.5 times cover — and I really wouldn’t like to see cover drop any lower than that.

The high yield is partly down to Lloyds shares having fallen 25% over the past year, to 66p, and that gives us a forward P/E of only 8.5 based on 2017 forecasts — which I think makes Lloyds’ dividend a very cheap one.

Oily cash

The big question hanging over the dividends at Royal Dutch Shell (LSE: RDSB) is whether they will be maintained, especially as this year’s forecast 7.3% yield would be nowhere near covered by earnings.

But with EPS set to bounce back in 2017, the 7.2% yield currently predicted for that year would be just about covered. And with rival BP insisting it will keep its annual payments going, I doubt Shell will want to break ranks. In fact, Shell has already announced a first-quarter dividend of 4.55p per share, and if we see the second payment maintained in July’s interim results I think that will raise confidence for the full year.

And the further oil prices recover, the more confidence we’ll surely have — Brent Crude is already at $48 per barrel, and how long will it be before it breaches the $50 level? I’m hoping Shell’s yield will drop, but only when Shell shares recover from their current price of 1,759p.

Insurance winner

If you harbour any doubts about the insurance sector’s ability to generate cash, take a look at Direct Line Group (LSE: DLG). Last year’s dividends were boosted by a special payment of 27.5p per share from the sale of the firm’s International division, but even without that we saw a total yield of 5.5% on the company’s year-end share price.

Direct Line has a policy of growing its regular dividends ahead of inflation, and also of paying back surplus cash in the firm of special dividends. This year we have a total yield of 5.9% forecast, on the current share price of 375p, and the City is expecting that to rise slightly to 6% in 2017 — and it looks to me like the cash should be able to support decent special dividends into the future quite nicely.

Direct Line shares appear to have had a pretty erratic 12 months, having lost 3.5% so far in 2016. But that’s been in line with ex-dividend dates, and so the reality is smoother than it looks. Right now, we’re looking at a forward P/E of around 13, which is relatively high in the insurance business — but for Direct Line’s levels of dividends, I’d call it good value.

The post 3 great dividends: Lloyds Banking Group plc (6.8%), Royal Dutch Shell plc (7.3%) & Direct Line Insurance Group plc (5.9%) appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

When you see a company that was struggling and had to cut its over-stretched dividend, but then went on to turn itself around and strengthen its balance sheet in impressive fashion, while building its dividends up again to yield 4% last year, you might think investors would be keen to buy the shares.

Well, that’s what insurer Aviva (LSE: AV) has been through. But no, its shares have fallen 20% over the past 12 months, to 424p, and are now on a forward P/E of just nine based on forecasts for 2016, dropping to only around 8.3 should 2017 forecasts prove accurate. And that dividend? There’s a further recovery on the cards this year, with the City’s analysts suggesting a yield of 5.6% and growing to 6.3% on 2017 forecasts.

What might convince the sceptics and get Aviva shares heading back upwards? I think it’s going to take an actual sustained earnings recovery rather than just forecasts, but if interim results due in August show that a forecast doubling of EPS is realistic, that’s when we might see some movement.

Very cheap bank

Barclays (LSE: BARC) shares took a tumble when the bank announced it was to slash its 2016 dividend by more than half, and at 165p they’re down 36% over 12 months. Many saw the move as an unexpected disaster, but the timing makes it seem anything but to me. New boss Jes Staley has been in charge only since December, and that makes it much easier for him to take more drastic action than an incumbent boss and not be seen as the bad guy… it’s other people’s mistakes he’s fixing, not his own.

Dividends are only going to provide yields of around 2% this year and next (and if Barclays shares should recover any of their lost ground during that time, the yield would drop even lower). At a time when other banks, like Lloyds Banking Group, are ramping up their dividends, a lot of income investors will have deserted Barclays.

But that’s put Barclays shares on a P/E of 7.3 based on 2017 forecasts, and that seems almost criminally cheap to me. Those who buy now could do very nicely over the next few years, although it might take a restart to the firm’s dividend rises to get investors back on board.

Oil recovery

Finally, if now isn’t the time to buy BP (LSE: BP) shares, I don’t know when will be. The price of oil is slowly coming back, and at $48 a barrel as I write it’s closing in on the $50 level and is more then 50% up from its low point in January. But BP shares have gained only 4% so far in 2016, to 367p, and are down 21% over 12 months.

BP has said all along that it expected cheap oil to last several years, and has made it clear that it really isn’t too worried about it. The company is in a sound enough financial shape without the debt problems that some smaller firms face, and has made a point of maintaining its dividend — we’re expecting a 7.4% yield this year!

What would set BP shares back on an upward path? Simple, I think, just a rising oil price. How long it takes is still anybody’s guess, but every dollar over 50 could gear up nicely for the future of BP shares.

The post Are Aviva plc, Barclays plc and BP plc the FTSE 100’s biggest bargains right now? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Up 50% in a year! That’s not the only reason I’d consider buying Barclays over Nvidia stock today
• Barclays shares could soon soar another 21%, according to the latest price target
• Just how bad could it get for the BP share price?

Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK has recommended Barclays and BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In fact, I added Vodafone to the Fool’s Beginners Portfolio back in 2012, as it looked good value, but after the Verizon disposal and rumours of a takeover bid by AT&T, the shares have been trading at what I see as takeover levels — which is too high for current fundamentals, in my view. I dumped Vodafone in December 2013, and I still think that was the right decision.

With the shares at 219p, we’re still looking at a P/E of over 45 based on expectations for the year to March 2016, and that would only drop to 28.5 by 2018 after two years of forecast earnings growth — still around twice the FTSE average. Predicted dividends of more than 5% wouldn’t be anywhere near covered by earnings even then. I still think Vodafone will return to winning ways, but right now I see the shares as too expensive and I don’t want any.

High street champion

Next (LSE: NXT), on the other hand, has been a favourite of mine for some time, and it remains so despite the company’s warning that “2016 will be a challenging year with much uncertainty in the global economy“. That came with full-year results this morning, and helped send the share price down 14% to 5,725p at the time of writing.

But Next is still raking in the cash in by the bucket load, and in the year to January 2016 the firm returned £568m to shareholders through dividends (ordinary plus special) and £151m through share buybacks. The 388p in dividends per share paid for the year (158p ordinary, 230p special) represents a total yield of 6.8%.

I’m normally very wary of fashion retailers, but Next has such a strong reputation for its buying expertise, and it sells decent clothing at decent prices, rather than riskier top-label clobber to the fickle end of the market. That, coupled with a likely P/E of around the FTSE average even if 2016 is a bit tough, and those better-than-6% dividends, makes Next a ‘buy’ for me.

Fill up with oil

And BP (LSE: BP), well, I don’t see how it can possibly not be a strong ‘buy’ today, with the shares down 32% from their June 2014 peak to 350p. The fall is entirely due to the slump in oil prices, but the timescale of it has not taken BP by surprise — chief executive Bob Dudley reckoned some time ago that we could be in a cheap oil spell for two or three years or more, but was happy that BP could ride it out just fine.

The price of a barrel has been hovering around $40 for a couple of weeks now, up from $30 levels in February, and if that trend continues then BP shares could be heading upwards sooner then expected. But even if it still takes a while longer, BP shares are still on a modest P/E of under 13 based on 2017 forecasts.

On top of that, there are dividend yields of 7.7% forecast for this year and next — and BP reiterated its “commitment to sustaining our dividend and then growing free cash flow and shareholder distributions over the long term” at full-year results time earlier this month. I don’t see why you wouldn’t want some of that.

The post Here’s Why I’d Sell Vodafone Group plc And Buy NEXT plc And BP plc appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

I can understand why much of the oil and gas sector has been hammered, with many upstream explorers (especially the smaller ones) carrying hefty debt funding and at serious risk if oil stays cheap for much longer.

But aren’t our two FTSE 100 oil giants looking a little oversold right now, and what does it mean for them if the hoped-for oil recovery really is in sight?

Modest fall

BP (LSE: BP) shares have actually only fallen by 32%, to 343p, since July 2014, when oil was up around $110 per barrel, and to regain that old height would need a 50% price rise. Of course, the chances of a return to an oil price as high as $110 any time soon seems extremely remote.

So very little chance of a doubling in the share price, then? Actually, current forecasts put BP shares on a P/E for this year of what looks like a stretching 26 (the FTSE average is only around half that right now). But this is a year when the company is only just expected to get back into profit, and prognostications for 2017 would drop that multiple down to 12 on a doubling of earnings per share (EPS).

That’s based on today’s pessimistic outlook for oil, too, with most of individual forecasts from before the recent uptick and before the increasing likehood of OPEC moves to trim some excess production. Should the oil price reach around $60 over the next 18 months, I could see BP’s 2018 EPS doubling again and dropping that P/E to just six.

And don’t forget there’s still an 8% dividend yield on the cards, with the company repeatedly saying it intends to uphold it.

Lower valuation

Looking at Royal Dutch Shell (LSE: RDSB) we see a slightly greater share price fall, of 37% to 1,606p, over a similar period — we’d need a 60% price rise to recover that old ground.

This time, although there’s a further EPS drop forecast for this year to put the shares on a P/E of 19, that would drop to only around 11.5 based on the EPS recovery forecast for 2017. Again, if we get a significant hike in the price of the black stuff by the end of 2017, I can see us going into 2018 with a further very handsome EPS rise in the soothsayers’ eyes.

Meanwhile, Shell shares are offering dividends of 8.3%. Shell has not been as openly committed to maintaining its dividend as BP and I think there is a more realistic chance of a cut, but if it happens the firm will be keen to keep it as late and as small as possible.

Double? Really?

Is there really a chance of these two providing 100% returns to those brave enough to invest now? If oil picks up to around the $60 mark and these dividends are maintained, I reckon there’s a pretty good chance of it.

The post Here’s How BP plc And Royal Dutch Shell Plc Could Double Your Money appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

I don’t subscribe to that approach myself, believing that getting the right company at the right valuation is far more important (and more achievable) than getting the timing right. But having said that, when it comes to the big FTSE 100 oil companies, I think the timing might be just about perfect now.

Talks between OPEC members about possibly controlling the oversupply of oil have restored a bit of confidence, and Brent Crude has perked up to $35.25 a barrel — still not great, but better than the $28-29 depths it was plumbing in mid-January.

Bob’s dividends

In turn, BP (LSE: BP) shares have gained  a little, picking up 13% since 11 February to 351p. BP boss Bob Dudley famously opined in January 2015 that we could be in for low oil prices for up to three years — and that was back when $50 was being seen as low, so I think he’s not going to be far off the mark.

Mr Dudley really wasn’t too worried, because giants like BP are in a financial position to hold out for lengthy periods like this. The firm has offloaded some assets and has shelved production at some of its more costly operations, but unlike some others it’s not highly geared and isn’t close to facing a debt crisis — in fact, BP would have very little problem if it needed to go for a bond offering to raise cash.

And BP has kept its dividend payment going. Shareholders enjoyed a massive 7.9% yield in 2015, and there’s 7.4% forecast for the current year — and the company has reiterated its commitment to keep the payments going.

Shell stretched?

Royal Dutch Shell (LSE: RDSB) is in a very similar position, though its share price has been more volatile than BP’s. Shell shares slumped to a low of 1,278p on 20 January, but since then we’ve seen a 27% recovery to today’s 1,617p.

Shell has also kept its dividends going, and there’s a 7.6% yield forecast for 2016. Though Shell has been less vociferous than BP in its dividend promises, the fact that it’s keeping the 2015 payout pegged at 188 cents per share has reassured the markets that a cut is not likely to be on the agenda in the shorter term. And though I think there’s a reasonable chance we will see a reduction in the medium term, the resulting lower yield should still be a pretty attractive one.

Shell does have the integration of newly-acquired BG Group to deal with, and it’s arguable that it overpaid on the deal, which was arranged when oil was significantly higher. We’ve seen a lot of cost cutting too, and the latest news is of thousands more job cuts to come.

Boot-filling time?

Of course, we could still see chaos at OPEC, the oil taps carrying on gushing, and the black stuff falling as low as the $20 that some of the growliest bears are fearing. But the longer term upside for BP and Shell just has to be excellent, and with income investors increasingly being drawn in by these high yields, I’m bullish about the two of them. Those looking to invest in the oil business today have possibly never had it so good.

The post Buy BP plc And Royal Dutch Shell Plc Now Before It’s Too Late? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.