Shares in oil major Royal Dutch Shell (LSE: SHEL) are having an incredible run at the moment. Over the last 12 months, Shell’s share price has risen more than 40%.
I actually sold my RDSB shares last year near the £13.20 mark as I didn’t think the stock was likely to generate attractive returns going forward. Did I make a huge mistake? And should I buy back into the oil major now?
Was selling Shell a mistake?
In hindsight, I sold my Shell shares way too early. Had I held on until today, I could have sold them 40% higher. That’s quite frustrating (although I did put the proceeds of the sale into Nvidia and that’s up about 25% since I bought). I stand by my reasons for selling the stock, however. One reason was the near-70% dividend cut. After that cut, Shell lost a lot of its income appeal to me. Another reason I sold was that I thought the stock may struggle in today’s ESG-focused world.
Should I buy the stock back now?
As for whether I’d buy Shell shares today, the answer to that question is no. I do think Shell’s share price could rise further in the near term. The price of oil has risen significantly recently due to supply and demand imbalances and many analysts think it can go higher. Analysts at Goldman Sachs, for example, recently predicted that oil could hit $105 per barrel in 2023. If oil does keep climbing, Shell’s share price is likely to rise too.
However, now that Shell’s dividend payout is much lower than it used to be, I don’t see a lot of long-term appeal in the stock. You see, history shows that Shell has been a very poor long-term investment from a share price/capital gains perspective. If we go back to mid-2007, the share price was higher than it is today. That means the stock has gone nowhere in nearly 15 years. That’s very disappointing for long-term investors. By contrast, over the same period, technology company Microsoft has seen its share price rise around 900%.
While I was picking up a yield of 5%+, I could justify owning Shell shares. However, now that the yield is lower, I think there are better places to park my money.
The fact that the long-term dividend track record is gone is also an issue for me. In my view, there’s now more uncertainty in terms of future payments.
Renewable energy challenges
Meanwhile, I still have concerns about Shell in today’s ESG-focused world. Right now, the company is fine because it’s benefiting from the underinvestment in oil and gas assets in recent years. This underinvestment has resulted in less supply, which has boosted energy prices.
Yet in the long run, Shell could face structural challenges as the world shifts to renewable energy. If it doesn’t make significant investments in renewable energy assets, it could be left with a portfolio of assets that aren’t relevant. Additionally, demand for its shares could be lower than it was in the past due to the fact so many institutions are now investing with an ESG focus.
So, I won’t be buying back into Shell. If I invested in the energy sector today, I’d be looking at the renewable energy space.