So far, this year has been gruesome for the FTSE 100, the UK’s main market index. Having closed at around 5,902 points on Friday, the Footsie has shed 1,640 points since 31 December, for a slide of 21.8%. Ouch.
For FTSE 100 stocks, big has been brutal in 2020
Of course, as the FTSE 100 is an index, it tells you nothing about the performance of any of its individual members. However, as I’ve pointed out several times recently, many of this index’s worst-hit shares have been those of the mega-caps (the FTSE 100’s largest members).
Furthermore, since March’s coronavirus-driven market meltdown, many market Goliaths have recovered, only to plunge to lower lows since the onset of summer. Take, for example, shares in Royal Dutch Shell (LSE: RDSB), whose current share price genuinely shocks me.
Royal Dutch Shell is going through Hell
Without a doubt, 2020 has been the worst year for Shell shareholders this century. On Friday, Shell shares dived as low as 884.05p – a price that made my head spin when I saw it. The share price then recovered some ground to close at 904p, leaving the oil & gas supermajor worth just £72.4bn.
Over the past 12 months, this FTSE 100 giant’s shares have collapsed by three-fifths (down 60.7%). Also, during this calendar year, Shell’s share price has crashed by a similar percentage (down 60% since 31 December).
Three reasons that ‘You can be sure of Shell’
With this FTSE 100 stalwart’s share price the lowest it’s been this millennium, here are three reasons to be contrarian by buying Shell shares today.
1. This FTSE 100 share can hardly go much lower
To put their shocking slump into perspective, Shell shares traded at 2,381.5p on 2 October 2019, just a year and a day ago. In other words, this energy giant has lost over £118bn of market value in a year. This staggering loss of shareholder value is greater than the current worth of any FTSE 100 member.
2. Shell is cutting costs fast
In the drive towards a low-carbon future, global investment is moving from hydrocarbons to renewable energy. To cope with a projected decline in oil & gas usage, Shell is slashing costs. It has committed to reduce expenses by $2.5bn a year by 2022. As part of this, the FTSE 100 firm is slashing up to 9,000 jobs from its workforce of 83,000 (10.8% of its headcount).
3. This FTSE 100 giant gushes cash
At present, Shell produces over 3m barrels of oil equivalent per day. At $39.27 per barrel of Brent Crude, that’s roughly $120m a day. Over the course of a year, this FTSE 100 heavyweight generates upwards of $45bn in cash flow from operations. And, when the world returns to a post-Covid normal, the lion’s share of this cash gusher will be directed towards shareholders.
What’s more, this FTSE 100 company expects to return $125bn to shareholders in the coming years (in the form of regular dividends, share buybacks and one-off distributions). In GBP, that’s £24bn more than Shell’s current market valuation.
To sum up, it’s been a horrific year for shareholders of this FTSE 100 firm, the low being the two-thirds cut to its dividend in April (the first reduction since the Second World War). But that’s all in the past and more than baked in to today’s price. Hence, I’d buy and hold this FTSE 100 share today for tomorrow’s capital gains and dividends!