Since hitting its recent post-meltdown peak near 6,485 on 5 June, the FTSE 100 has been sliding. Poor corporate forecasts have pushed the index down to 5,964 today. That’s a fall of around 520 points (8%), on top of steeper falls earlier this year.
A FTSE 100 giant stumbles
One share dragging down the FTSE 100 today is Royal Dutch Shell (LSE: RDSB), whose shares dived after the oil supermajor released its half-year results.
As I write, Shell shares trade at 1,121p, down 60p (5%) on yesterday’s close. Exactly a year ago (30 July 2019), shares in this FTSE 100 colossus closed at 2,641p. In other words, over the past year, Shell shares have crashed by 57.6%. Ouch.
Today, Shell shares stand 26% above their 52-week bottom below 890p set on 19 March, during the Covid-19 market meltdown. This FTSE 100 share was the bargain of a lifetime back in March, but do its shares still offer value today?
Shell makes a profit, so its shares slip
In the second quarter of 2020, Shell revealed modest (adjusted) earnings of $638m, crashing almost 82% from Q2 2019’s $3.5bn. But some analysts expected the FTSE 100 firm to make billion-dollar losses, so Shell actually positively surprised in this regard.
Despite enduring perhaps the worst quarter in its 113-year history, Shell will pay a second-quarter dividend. Shell slashed its first-quarter dividend from $0.47 to $0.16 its the first cut since World War II. It has held this cash payout at $0.16 for the second quarter. This dividend, worth 12.28p per share, will be paid on 21 September to those owning shares on 13 August.
Shell is still a strong FTSE 100 business
Shell would have made much larger losses, had it not been for outstanding results from its oil-trading operations. Remember when the price of a barrel of WTI oil briefly went negative and traded at -$40 in late April? It looks like Shell traders made hay while retail investors got fried.
Then again, Shell conservatively wrote down the value of its assets by $16.8bn, pushing the FTSE 100 stalwart to a reported loss of $18.1bn. But the vast majority of this loss relates to non-cash items, so Shell remains financially strong.
This FTSE 100 fortress has beaten a perfect storm
In early January, Brent crude was selling at close to $70 a barrel, before the price collapsed below $20 in April. It has since recovered to hover around $43, down around a third (34%) over the past 12 months.
Oil consumption collapsed during the coronavirus lockdowns and is only slowly recovering. But any improvement in oil demand and pricing should strengthen Shell’s sickly share price.
Shell is a £91.5bn, century-old survivor
Although its market value has more than halved to today’s £91.5bn, Shell has weathered tougher times, including repeated oil crises. This FTSE 100 giant always bounces back, which is why I fully expect it to recover and move on.
For me, this is a surprisingly good set of results from Shell. I expected and feared far more red ink in Shell’s figures, perhaps into billions of dollars. But Shell’s strength and diversification has seen it survive yet another catastrophe. Now it needs to thrive again.
Given the lack of visibility of 2020–21 earnings, any price-to-earnings ratio for this FTSE 100 behemoth would be pure guesswork. But even a severely reduced yearly dividend of $0.64 (49p) a share would equate to a forward dividend yield of almost 4.4%.
Hence, I would buy and hold Shell shares today to bank these tidy cash payouts. Then I’d patiently await a return to better times – and future capital gains, too!