If we continue to recover from the pandemic in 2022, I expect oil stocks to come out ahead. Specifically, well-established FTSE 100 ones like Royal Dutch Shell (LSE: RDSB). Oil is closely linked to the fortunes of the economy. Especially now, when the slowdown has gone hand-in-hand with severe travel restrictions. It is only logical then, that as we are allowed to move around more, there will be even bigger demand for oil.
Buybacks could lift Royal Dutch Shell shares
Crude oil prices have largely been rising since November 2020, when vaccines were first developed, leading to optimism about the future of business. In line with that, oil stocks have done well too. And I reckon they will continue to do so. In fact, just yesterday, Shell said that it will carry out share buybacks “at pace”. This is quite likely to be good news for existing shareholders, since fewer Royal Dutch Shell shares in the market could push up the price.
Higher than average dividend yield for a FTSE 100 stock
Also, I like the company’s dividend prospects, which too could be positive for the share price. Right now, its dividend yield is 3.5%, which is slightly higher than the FTSE 100’s yield of 3.3% anyway. But if it continues to see an oil price bonanza they would probably rise more. Considering that its current dividend payouts are a fraction of what they were pre-pandemic, it is not farfetched to think that they could rise more. I am increasingly tilting towards investing for a passive income, so this is a big reason for me to consider buying more of Shell shares in 2022.
Oil is going out of vogue
But as is often the case with stocks, where there are rewards, there are some risks. And this FTSE 100 stock is no different. Oil stocks are divisive right now. On the one hand, we need oil to survive and even grow. On the other hand, polluting fuels are really bad for the planet’s and our long-term future, as we know all too well. For this reason, we also know that they will be on their way out over the course of this decade.
Oil biggies are now recreating themselves as clean energy providers. How far they succeed in doing so, remains to be seen. For this reason, I believe I have to actively monitor my oil-related investments.
What I’d do
As an investment writer, it is relatively easy for me to monitor my investments. But if I were engaged in a completely unrelated field, I might struggle to do so. This is a potential drawback of the stock. Instead, I would then prefer buying stocks I do not have to worry too much about for the next 10 years. But I do also believe that the returns from a stock like Shell could be big enough in the next three to five years to justify staying up to date with them. I continue to maintain that I will buy more of the stock this year.