I was surprised when I worked out recently that if you’d invested in BP ten years ago you’d have made a 30% profit, despite it having been one of the worst economic decades in years with the Gulf of Mexico oil spill thrown in for good measure.
And that made me wonder how Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) has fared over the same period.
Easily ahead of BP
At the time of writing Shell shares are trading at 2,390p, and that’s 68.4% more than at this time a decade ago — so a £10,000 investment back then would have turned into £16,843 today. That’s well ahead of the £13,075 you’d have had from the same cash invested in BP, though that BP result includes all dividends collected and reinvested over the 10-year period.
So what would an investment in Shell be worth including dividends?
Both the big FTSE 100 oil companies have paid decent dividends, although BP’s did take a dive in the wake of the disaster. Meanwhile, Shell’s was going strongly and reached yields of better than 6% in 2008 and 2009, and it was still above 5% last year.
That would have added another £6,397 to your 10-year total, to bring it up to £23,240 — and a return of 132% really is pretty good going!
Reinvest the cash!
But that’s not the end of the story, as we’ve not yet considered the effect of reinvesting the dividend cash each year instead of just spending it.
As long as the average buying price during your period of investment is lower than today’s price (and unless a stock is having a very bad time, it usually is), then reinvestment will enhance your total returns. In this case, buying new Shell shares each year would have contributed another £3,209 to your pot, and you would have ended the decade with a total of £26,449.
In short, with dividends reinvested, an investment in Shell shares 10 years ago would have brought you a 164% gain!
And you’d be starting your next decade sitting on 1,100 shares instead of the 705 you’d started out with back in 2004.
A sobering comparison
Putting that good news aside, it does bring home the extent of the Gulf disaster in terms of shareholders’ pain — it’s really the only difference between the £26,449 you’d have as a Shell shareholder today and the relatively poor £13,075 you could count on if you’d bought BP.