RDS.A: Royal Dutch Shell

Date: 10 March 2009
Price: $41.19
P/E: 3.42
FP/E: 6.7
P/B: 1.0
Yield: 7.8%
Debt/Eq: 0.2

Company Description
Huge oil company with a generous dividend policy. They do everything from exploration and drilling through to operating gas stations.

Note that these are the A shares, where the B shares are traded in the London Stock Exchange. This isn't anything to worry about - fundamentally by buying these shares we would be buying Shell.

Past 10 years
It all looks good. Sales, earnings, book value have all increased significantly - although it should be noted that over the past 5 years gas prices have also increased significantly... however Shell was doing well even during 2000-2005 when gas prices were fairly static.

It's interesting that P/E ratios have been consistently low these past 5 years - perhaps because gas prices have been high, and the market has been anticipating a fall.

Pros
This is all about the yield. But it's a yield in a huge multinational corporation with a solid balance sheet that prides itself on paying out a nice dividend - and indeed increased the dividend last year.

Cons
To what extent is stock price performance pegged to the price of oil? But if it is, then prices are currently far below the $130/barrel range we saw a year ago - more like $40-$50/barrel... but that's still high compared to $15-25 that we had 7 years ago.

Also, do we view big oil as 'bad' in some way - for environmental reasons for example? In which case should we not be investing?

Conclusion
Maybe. I think yes as part of a portfolio, but this would be a smaller buy compared to some of the others I think.