In 2022, oil and gas stocks have been far and away the standout performers in the FTSE 100. Year-to-date, the Shell (LSE: Shel) share price is up 47%. However, investors still remain wary about buying into Big Oil. Here I’ll explain why I believe that Shell, and the broader industry, will continue to outperform the general market in the years ahead.

Gushing free cash flow

In its Q3 results released today, Shell reported earnings of $9.5bn. That’s over double what it reported in the same period last year. EBITDA (earnings before income tax, depreciation and amortisation) was 60% higher, standing at $21.5bn.

Despite these impressive figures, they’re down slightly on Q2 as oil prices have come off their highs of $120, reached earlier in the year.

Growing dividends and buybacks

One of the primary reasons for investing in Shell is for its dividend. When the pandemic struck, it shocked the market by reducing it by 66%. It’s now seeking to woo investors back by steadily increasing dividends.

In Q3, it announced a dividend per share (DPS) of 25 cents, unchanged from last quarter. In Q4, however, DPS is earmarked to rise 15%. If that dividend were maintained, my calculations are that the stock would provide a yield of 4.2%.

Admittedly, Shell’s dividend yield is hardly headline-grabbing. However, the company continues to buy back its own stock at an increasing rate.

Throughout 2022, it’s expecting to buy back $18.5bn of its own shares. Over the next quarter alone, it has earmarked buybacks totalling $4bn. As a result, total distributions to shareholders will be in excess of 30% of cash flow from operations (CFFO). Given that at the nine-month mark, CFFO stands at $46bn, shareholders are been handsomely rewarded.

Commodities bull market

Over the last year, I’ve written extensively about the oil and gas industry. While many investors have given the sector a wide berth, wary about its medium-term prospects, I continue to remain bullish.

Back in June when oil stocks began selling off, I was in favour of taking a contrarian stance. Since then, the commodities sector has bounced back strongly. So where do I go from here?

Since reaching a peak of $120 in June, the oil price has slowly been declining. However, this decline needs to be set in a wider context.

In a bid to increase supply, the US government has been selling off its strategic petroleum reserves (SPR) at a record rate over the past year. At this rate, the SPR will be zero in 18 months.

Elevated levels of inflation are forcing central banks to push up interest rates. As the world economy heads into a likely deep recession, demand will undoubtedly take a hammering.

Yet despite these two huge macro forces bearing down on it, the oil price continues to hold up well. The reason is that inventories remain extremely tight. It’s the lack of supply coming online in the years ahead that’s the real driver for oil prices to remain elevated.

Levels of capital expenditure across the industry remain depressed. Solving this issue will involve international consensus around energy security. Until addressed, I expect the Shell share price to continue to perform well. That’s why I recently increased my position in Shell.

The post Are we entering a golden era for the Shell share price? appeared first on The Twelfth Magpie.

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Andrew Mackie has positions in Shell plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions.

Lloyds (H1 Earnings)

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. The FTSE 100 bank is expected to post its half-year earnings for its six months performance ending June on 27 July. The company’s financial year ends in December.

The overall consensus is that Lloyds is expected to continue growing its top line from rising interest rates. That being said, its diluted EPS is expected to decrease for the half year and full year. This is most probably due to the increasing number of defaults and bad loan provisions. Investors will also be keeping an eye out for the remediation figure, number of late-stage loans, and free cash flow to determine whether the UK is entering a recession.

Shell (Q2 Trading Update)

Shell (LSE: SHEL) is a British multinational oil and gas company. It is one of the biggest oil and gas firms. And by revenue and profits, it’s one of the largest companies in the world. The giant is set to reveal its Q2 numbers for its three months performance ending June on 28 July. The company’s financial year ends in December.

The earnings preview seems to indicate a top and bottom line improvement to Shell’s business, as last year’s figures were still impacted by worldwide lockdowns. As global travel resumes, investors will be keeping an eye out for future guidance to determine whether analysts estimates can be met for the full year. If so, the Shell share price is expected to stay green for the foreseeable future.

Unilever (H1 Earnings)

Unilever (LSE: ULVR) is a consumer goods conglomerate producing food, condiments, ice cream, cleaning agents, beauty products, and personal care. Its brands include Lynx, Ben & Jerry’s, Dove, and many more. Unilever will be releasing its half-year earnings for its six months performance ending June on 26 July. The company’s financial year ends in December.

While revenue is expected to increase on a half-year and full-year basis, underlying EPS is expected to fall. This is most probably due to high inflation rates that are beginning to take a toll on a global scale, with higher costs impacting the producer’s operation expenditure. Nonetheless, a beat on both revenue and EPS estimates this week could see the Unilever share price push into the green for the year.

The post Earnings preview: Lloyds, Shell, Unilever appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Unilever. 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.

Recent trends in the Shell share price 

The main reason for the recent surge in the Shell share price is the rising price of oil. Indeed, at the start of June last year, WTI Crude was priced at under $70 a barrel, whereas it has now reached around $115 per barrel. This rise has been caused by declining supply due to the tragic Ukraine-Russian war, alongside increased demand as global pandemic restrictions have been lifted. 

These high oil prices have led to very strong profits. In fact, in the first quarter, the oil giant reported adjusted earnings of over $9bn, far higher than the $3.2bn reported in the first quarter of last year. 

This has also enabled the group to improve in other areas of the business. For example, net debt now totals around $49bn, over $20bn lower than last year. Shareholder returns have also increased, with the quarterly dividend now totalling 25 cents per share. Although this equates to a slightly lacklustre yield of 3.3% due to the high Shell share price, it’s extremely sustainable considering the current profits the group’s making. Shell has also announced a share buyback programme of $8.5bn, which should also help to boost the share price. 

My concerns

So far, there seems very little wrong with Shell. However, I do have three main concerns about the company. 

Firstly, there’s the recent windfall tax that the government has introduced, to help people deal with high energy prices. Although the impact on Shell isn’t fully known, it may restrict the company’s ability to return cash to shareholders.

Secondly, I don’t think that these high oil prices are sustainable for the long term, especially considering climate change issues. Therefore, Shell may be forced to rely on other parts of its business, such as the renewables sector. This is still in its infancy, however. 

Finally, I have ESG concerns about Shell, due to its role in contributing to global warming. For example, a safety consultant, Caroline Dennett, recently quit the company stating that it was “causing extreme harms”. This provides me with a strong reason to stay away from a company. 

What am I doing now? 

Right now, the Shell share price is soaring, and its recent rise has been understandable. But I’m less confident about its long-term future as I don’t believe that the current oil price is sustainable. Because of this, I don’t see a long-term upward trajectory for the share price. I’ll be observing Shell shares from the sidelines, but I won’t buy. 

The post The Shell share price has more than doubled! Has it got further to rise? appeared first on The Twelfth Magpie.

More reading

• Down 8.4% in a week! How far could the Shell share price fall?
• Could the FTSE 100 really hit 11,000 this year? This major city broker thinks so!
• Down 10% to under £33! Is Shell’s share price just too cheap for me to ignore?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

It’s been a volatile start to 2022 for global stock markets as geopolitical uncertainty and monetary tightening begin to bite. However, I’ve identified two FTSE 100 stocks that have bucked this trend.

With strong fundamentals and solid earnings forecasts, I believe these UK shares have the potential for substantial gains over the next five years and beyond. Here’s why.

FTSE 100 share #1 – Shell

Shell (LSE: SHEL) stock has enjoyed explosive gains of over 26% this year after superb financial results for 2021. Adjusted earnings beat expectations, rocketing to $19.29bn from $4.85bn the previous year.

Buoyed by sky-high oil prices, the FTSE 100 energy giant will undertake an $8.5bn share buyback programme by the end of Q2. Shell also intends to hike its dividend by 4% to $0.25 per share.

Yet despite its strong recent performance, the Shell share price is marginally down over five years. In addition, the plummeting values of its Russian assets have recently cost the company nearly $5bn since it ceased operations in the country.

Nonetheless, I remain bullish. Shell has sufficient geographic diversification to withstand Russian sanctions in my view. For instance, there’s its substantial on-stream oil and gas projects near Nigeria and Mexico.

Shell stock could also benefit from an agreement with Deutsche Telekom to supply renewable energy for 10,000 electric vehicle charging points in Germany. I regard this as a positive development for the fossil fuel business.

While there are signs of a greener future for the company, I still see oil as the real driver of growth for Shell’s share price. During a booming commodities cycle, the next five years should be significantly better for this FTSE 100 stock in my opinion. I’d buy.

FTSE 100 share #2 – London Stock Exchange Group

Financial infrastructure and data analytics form the core of London Stock Exchange Group (LSE: LSEG)’s business. The LSE share price is up 16% over three months and an impressive 73% over three years. This FTSE 100 company generates 44% of its earnings in EMEA, 42% in the Americas and 14% in Asia.

LSE services 40,000 customers in 190 countries. Last year, the company enjoyed revenue growth in all three of its primary divisions — data & analytics, capital markets and post trade. Adjusted earnings per share almost doubled to 287p.

It also delivered statutory total income of £6.4bn for 2021 and a 27% increase in the total dividend per share to 95p. This year, the company has ambitious plans to expand its Workspace technology to foreign exchange users at scale, reinforcing its end-to-end FX offering. Overall, the FTSE 100 stock looks well positioned for long-term growth.

However, cautious investors will note recent news concerning heavy selling of LSE shares. Institutional investors sold a total of £450m last month, according to Bloomberg, suggesting the stock could be overvalued. As Brexit tensions persist, further headwinds are posed by EU plans to move its clearing operations away from the London Stock Exchange to the eurozone by 2024.

Nevertheless, I’m optimistic about this British financial company. While not without risks, it’s a highly cash-generative business with truly global diversification. For me, LSE stock is a good investment to buy and hold for years to come.

The post 2 soaring FTSE 100 shares I’d buy and hold until 2027 appeared first on The Twelfth Magpie.

More reading

• Down 8.4% in a week! How far could the Shell share price fall?
• Are investors looking for income stocks in the wrong places?
• Could the FTSE 100 really hit 11,000 this year? This major city broker thinks so!
• Down 10% to under £33! Is Shell’s share price just too cheap for me to ignore?

Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

A decade ago, shares in Shell traded at 2,294p. Today I can snap them up for 1,665p, around 27% less. Incredibly, they traded at a lowly 995p in September 2020, just before the Pfizer vaccination bounce. At the time I wrote that now could be the time to get greedy and buy both Shell and BP.

A little unsure of Shell

That turned out to be a good call in retrospect but what about today? The Shell share price is up 40% over 12 months, boosted by the oil price recovery and looming energy crisis. Yet it doesn’t look overpriced either, measured by a forward P/E ratio of 9.3 times earnings.

The dividend is starting to gush again, after July’s 40% increase. Shell’s stock now offers a forecast yield of 3.8%, while cover of 2.8 times gives room for progression. Management is also pursuing $2bn of share buybacks, further rewarding shareholders.

The Shell share price jumped 2% on hearing of plans to drop its dual-share structure of A and B shares and shift its headquarters (and tax residence) to the UK. As well as avoiding the 15% Dutch dividend withholding tax, this will give it more freedom to offer share buybacks.

It will also help Shell sidestep climate action in the Dutch courts and may also be a rebuke to Dutch pension fund giant ABP, which recently divested £15bn of fossil fuel holdings, including a large chunk of Shell.

So a lot of thing are going Shell’s way right now, which in normal times would be great news for the share price. However, management still has to face up to the climate change threat, wherever its head office is based. 

Green around the gills

Shell is now looking to cut emissions by 50% by 2030. That’s up from 20% but still looks leisurely as climate urgency grows. Scope 3 emissions are a far bigger challenge. These are generated by burning the group’s fuels and account for around 90% of its carbon footprint. The board aims to hit net zero by 2050. It may have to speed up that target as well.

Shell is talking the green talk but is the board ready to walk it, too? I’m not so sure. It may be planning a $3bn annual spend on green technology, but will invest four times as much in drilling for oil. Given the mood of the times, that probably has to change. 

Investors must shake off the assumption that just because Shell was huge in the past, it will be again. We are clearly still going to continue using fossil fuel to fund the energy transition, and on that basis Shell is still a buy for my portfolio. However, management will have to invest more in renewables. These days, it’s not easy not being green.

The post I reckon Shell is still a top passive income FTSE 100 stock – for now appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The oil giant

Royal Dutch Shell (LSE: RDSB) was one of the worst FTSE 100 performers in 2020, due to the large fall in oil prices. Despite this, 2021 has been slightly more positive, with the Shell share price up around 12%. There are a few reasons why I think it can rise further.

Firstly, oil prices have recovered strongly since last year. Indeed, crude oil is now priced at around $75, compared to just $40 this time last year. As Shell’s profits are heavily dependent on oil prices, this bodes extremely well for the company’s earnings.

Secondly, the oil giant has recently demonstrated its intention to increase shareholder returns. This has been enabled because of the improved outlook, and strong financial results. And the company is further reducing its debt pile. As such, whether through the return of its share buyback programme or larger dividend payouts, shareholders are set to benefit from this optimism. This is a fundamental reason why Shell is one of my favourite FTSE 100 stocks right now.

There are a couple of risks to consider though. Firstly, energy is a volatile sector, and the price of oil can fall quickly. For example, while OPEC+ has endeavoured to cut the supply of oil over the past year, supply may now start to increase too quickly, and this would likely cause the price of oil to fall. Further, many in the industry believe that oil demand will peak in the next decade. This may hinder the long-term prospects of Shell.

A FTSE 100 stock with a big dividend

Legal & General (LSE: LGEN) managed to cope fairly well with the pandemic. In its 2020 results, operating profits were over £2.2bn, around the same as the year before. This represents a very strong performance, especially in extremely difficult circumstances. It has also come out of the pandemic in very strong financial health. For instance, its Solvency II coverage ratio is over 190%. This represents an extremely strong balance sheet, thus reducing the risk around Legal & General shares.

The main attraction of Legal & General is its dividend. In fact, the 2020 dividend of 17.57p equals a current dividend yield of 6.5%. This is far larger than the majority of other FTSE 100 stocks, and also looks at very little risk of a cut. On the contrary, the insurance company has a record of raising its dividend annually, and this seems likely to continue. This strong dividend is the reason why I’d happily add more LGEN shares to my portfolio.

Despite this, like many other financial companies, LGEN may struggle if the economic recovery starts to slow. Especially as government pandemic support starts to wind down, this is a real risk to consider.

The post 2 FTSE 100 stocks to buy today appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Royal Dutch Shell and Legal & General. The Motley Fool UK has no position in any of the shares mentioned. 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.