Sunday, 24 March 2013

A Look At Royal Dutch Shell


Because the price of oil and gas is volatile, I’ve long held off on purchasing stocks in these types of companies. Recently, the share price of RDS.b has caught my attention.

Average Dividend Yield Analysis*

RDS.b-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2006
$74.93
$62.75
$0.560
$0.6305
$0.6308
$0.6295
$2.45
3.91%
3.27%
2007
$87.94
$62.20
$0.65
$0.72
$0.72
$0.72
$2.81
4.52%
3.20%
2008
$87.54
$41.41
$0.72
$0.80
$0.80
$0.80
$3.12
7.53%
3.56%
2009
$62.26
$37.16
$0.80
$0.84
$0.84
$0.84
$3.32
8.93%
5.33%
2010
$68.32
$47.12
$0.84
$0.84
$0.84
$0.84
$3.36
7.13%
4.92%
2011
$78.81
$58.37
$0.84
$0.84
$0.84
$0.84
$3.36
5.76%
4.26%
2012
$77.53
$63.05
$0.84
$0.86
$0.86
$0.86
$3.42
5.42%
4.41%
2013


$0.86
$0.90
$0.90
$0.90
$3.56


2014


$0.90
$0.90
$0.90
$0.90
$3.60


Stock prices are per calendar year.
7y ave
6.17%
4.14%
Dividends are recorded in the quarter they were paid.
5y ave
6.96%
4.50%







3y ave
6.10%
4.53%







5y
$51.75
$80.04







3y
$58.98
$79.45






Super Cheap
$40.29


The table shows the 3 year average dividend yield to be 6.10% ((7.13% + 5.76% + 5.42%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $3.60, one would have to pay $58.98 for a 6.10% dividend yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 8.93%. Using the current annual dividend, that corresponds to a stock price of $40.29 today (see “super cheap” price in the table above).

Graham Price

RDS.b’s 2010, 2011 and 2012 EPS were $6.56, $9.96 and $8.50. 3Y Ave EPS = $8.34.
RDS.b’s BV is $59.78.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $105.91

Cyclically Adjusted Price to Earnings Ratio

RDS.b’s 9Y Ave EPS = $7.63
CAPE = Stock Price / 9Y Ave EPS = $67.47 / $7.63 = 8.85
A CAPE below 20 is good.

Conclusion

Although RDS.b trades above my super cheap price, it’s way below the Graham price. Combine this with a CAPE well below 20, and it would seem the stock is trading at an attractive valuation.

2013 & 2014 EPS are estimated at $8.80 and $8.60, respectively. The expected low EPS growth probably explains the current P/E of 8.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.



2 comments:

  1. I also feel that RDS.b is attractive compared to some of their peers. I've been adding recently and now have a full position. If it falls a lot more I may make additional purchases. Thanks for the analysis.

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    Replies
    1. Thanks for dropping by AAI. I held back on RDS.b this week and purchased some BNS instead. Eventhough Shell trades at an attractive value, I was hoping to grab some shares below $65.

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