The collapse of the global oil market has created a number of buying opportunities among oil and gas stocks. Now that the worst of the downturn has come and gone, investors have one last chance to buy value dividend stock Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B) on the dip.
It’s certainly unusual to call a stock that is currently generating negative net income a value stock. However, most stocks don’t have cash flows and profits tied so closely to the price of a commodity like oil.
Like many oil and gas stocks, if crude oil prices stay below $50/bbl, RDS.B stock will struggle to make significant headway. But assuming oil prices continue a steady long-term rise, Royal Dutch Shell is sitting in an ideal position.
In the years leading up to the collapse of the oil market, RDS.B spent heavily on exploration and production projects. In addition, the company recently closed a massive $50 billion buyout of BG Group plc (ADR)(OTCMKTS:BRGYY).
The buyout certainly stretched Royal Dutch Shell’s balance sheet thinner than shareholders would ever want to see it stretched. However, if oil prices recover, RDS.B’s aggressive buying will work wonders for its cash flow for years to come.
RDS.B Is a Hidden Value Stock
Royal Dutch Shell’s new game plan is selling off non-core assets, cutting costs as much as possible and attempting to stay afloat. Management is prioritizing spending until the crude oil market is more cooperative. The company now says its priorities will be debt reduction, dividends, capital investments and share buybacks.
The following Bloomberg graph shows just how much Shell’s net debt has ballooned in 2016. Yet, so far, the company has opted not to cut the dividend.
In fact, Shell hasn’t cut its dividend in 70 years. That fact is a good indication of how committed management is to maintaining the dividend.
In June, CEO Ben van Beurden provided an update on this strategy.
“By capping our capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focused and more resilient company, with better returns and growing free cash flow per share,” van Beurden explained.
Of course, these projections assume at least $60/bbl crude oil prices in the long-term.
Wall Street’s Take on Shell Stock
The company and its shareholders are…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
