What is unique about Royal Dutch Shell
KION GROUP AG
For Royal Dutch Shell shares, it's that time again this month: it's payday. What is meant, of course, is the payment date, which should not be confused with the ex-dividend date. After all, there are about four weeks between the two dates.
Either way, should you buy Royal Dutch Shell stock because of the dividend? Should you even buy a stock for dividend? Probably not. With the British-Dutch oil and natural gas multinational, however, it might be particularly appropriate to be a little critical. In any case, I have three reasons why this is not sufficient for an investment thesis.
Royal Dutch Shell shares: little, right?
Investors in the Royal Dutch Shell share now receive a quarterly dividend of 17.35 US cents. Based on a current share price of around 17.26 euros per A share, or 15.98 euros per B share, the dividend yield is around 3.35% (A share) and 3.64% (B- Share). These are values that are comparatively low.
For Foolish investors looking for the high dividends in the oil and natural gas segment, Royal Dutch Shell shares no longer offer such gigantic passive income potential. That is one of the first reasons why this stock may no longer be the primary target for dividends. There are, however, more important, more decisive reasons.
The constancy is over
In the case of Royal Dutch Shell shares, the impressive history is over. The management behind the British-Dutch oil and natural gas multinational cut its own dividend last year. That means: the distribution has been capped for the first time in around 75 years. Not just that some investment theses have ended with the break of constancy. No, this cut was also remarkable in terms of quality.
After all, the dividend was previously $ 0.47, which shows that the payout is currently still around 63% below the original level. The Royal Dutch Shell share has therefore broken with its own history for understandable reasons. Nevertheless, an investment thesis based on the dividend could therefore also be dangerous.
Is the dividend affordable now?
A third reason why Royal Dutch Shell shares may not be a buy because of the dividend is related to the question of how sustainable your own dividend is. In any case, one thing is certain: the 2020 financial year ended with a heavy loss. This shows that the dividend is actually paid out of the substance.
At the moment, the oil market could be a little more balanced again. Measured against a price level of over 60 US dollars per barrel of Brent and WTI, the British-Dutch group should be profitable, at least on an adjusted basis. As well as generating healthy free cash flow. Even so, the risk remains that oil prices could collapse.
Royal Dutch Shell shares: don't buy for the dividend!
Foolish investors should therefore not buy Royal Dutch Shell shares because of the dividend. At least not in my opinion. Basically there could be a turnaround. Yes, possibly a longer-term recovery. However, the group is also facing a serious restructuring. This shows that the prospects could remain difficult in the medium to long term.
The post 3 Reasons Why You Shouldn't Buy Royal Dutch Shell Stocks for the Dividend appeared first on The Motley Fool Germany.
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Vincent owns shares in Royal Dutch Shell. The Motley Fool has no position in any of the stocks mentioned.
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