Share Centre share of the week: Royal Dutch Shell
“As the largest listed company in the UK, Royal Dutch Shell is a sector leader producing fuels, chemicals and lubricants worldwide.
“This week, the company confirmed its takeover of BG Group, and to some investors the premium of 50 per cent to the close price prior to the announcement can be considered as high. However, we believe Royal Dutch Shell will continue to be a very good dividend payer for many years and the timing of the acquisition – when oil prices are low – could in hindsight be seen as astute. This acquisition makes strategic sense, adding 25 per cent to Shell’s proven oil and gas reserves and 20 per cent to annual production and lead to annual cost savings of $2.5 billion.
“The group’s portfolio will undergo major reorganisation in the years to come, which may bring positive rewards to investors in future. The dividend yield in excess of 5.5 per cent remains very attractive and the share price is likely to be supported by a share buyback program.
“Despite the fall in the oil price, we continue to recommend Royal Dutch Shell as a ‘buy’ for low risk income seekers. We believe it still represents a core holding for many portfolios due to the relatively stable cash flows and attractive income that it generates.”