Are you trying to win a 2014 share-picking competition?
Well, don’t buy Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) then, because the share price is up and down erratically with unpredictable earnings ebbing and flowing from year to year.
At the moment at 2,340p, the price is around 7% up over the past 12 months and bang in line with the FTSE 100, but it’s been lagging the index for a lot of the past year.
An ISA is different
But if you’re considering Shell for a portion of your 2014 ISA allowance of £11,760 (or for some leftover allowance before the new ISA year starts), then that’s a different prospect altogether.
Your ISA money can be invested in all manner of shares using whatever strategy you like — but I reckon it makes a lot of sense to allocate your tax savings to the kind of shares that you will be happy to hold for 20 years or more.
Shell’s here for keeps
And over that timescale, Shell scores very highly.
Before we even look at the company’s figures, consider its business — oil and gas are not going to go out of fashion any time soon. Sure, we’ll see more and more energy from renewable sources in the future, and nuclear power will play its part, but it will take a very long time indeed before such sources come close to providing a meaningful fraction of the energy produced by fossil fuels.
Shell isn’t one of those small high-risk operators, either. With a market capitalisation of more than £140bn, it’s not only the biggest in its sector — it’s the biggest company in the whole of the FTSE! While there’s oil & gas being extracted from the Earth, there’ll be Royal Dutch Shell.
Erratic earnings…
So finally, what about Shell’s figures?
Well, earnings per share (EPS) have been up and down over the past five years, with two very strong years in 2010 and 2011 followed by EPS falls of 6% and 39% in 2012 and 2013 respectively.
And then forecasts suggest a rise of 33% this year and 5% for 2015.
…but steady dividends
But whatever the share price does, Shell is providing regular dividend yields of 4-5%, with 5% forecast for this year and 5.1% for next.
And a dividend of 5% per year reinvested in shares over the course of 20 years would turn £1,000 into £2,650 — even if the share price doesn’t budge a penny!
Any actual share price rise over 20 years would be a bonus!
And it sure beats the bank!
Or would you prefer the £1,400 a savings account paying a typical 1.7% would get you over the same period?