When I think of oil giant Royal Dutch Shell (LSE: RDSB) (NYSE: RDSB.US) , two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company attractive as an investment proposition.
1. Strong project pipeline
In the recent full-year results statement, Royal Dutch Shell’s CEO said the firm’s momentum slowed in 2013 and it must improve its financial results, achieve better capital efficiency and continue to strengthen its operational performance and project delivery.
That sounds like one of those statements we tend to make when we are pretty sure that such an outcome is set to occur! Indeed, as recently as the time of the autumn three-quarter results report, he reckoned the company has a strong project flow in place for 2014 and beyond that will drive Shell’s cash flow for several years.
Shell’s growth plans could see around 30 major projects add some seven billion barrels of oil, or gas equivalents, which are likely to boost cash flow by $15 billion before the end of 2015 if the oil price holds at about $100 per barrel.
That’s an encouraging growth agenda, which keeps me interested in Royal Dutch Shell.
2. Stable cash flow
Despite 2013 shaping up as a lacklustre year on profitability, Royal Dutch Shell has been good at delivering stable cash flow in recent years:
| Year to December | 2009 | 2010 | 2011 | 2012 | 2013 |
|---|---|---|---|---|---|
| Net cash from operations ($m) | 21,488 | 27,350 | 36,771 | 46,140 | 40,440 |
Strong flows of cash make it possible for the firm to reward its investors through the dividend and via an active share repurchase scheme designed to drive up both earnings per share and dividend per share. As the forward project pipeline starts to deliver, it seems likely that cash flow could grow firmer still.
What now?
Having read the runes, I think it seems likely that Royal Dutch Shell will perform well, financially, during 2014 and beyond. As such, the firm looks like a decent bet in the resources space for those investors seeking dividend income.