Investing £20,000 in Shell (LSE: SHEL) shares four years ago would have been a smart move.
In February 2021, the world was still reeling from the Covid pandemic. Stock markets were volatile, economies were buckling and the Shell share price was trading at just 1,345p. Fast forward to today, and the stock price has surged to 2,661p. That’s an impressive 98% rise over the period.
So how much would an investor who put £20,000 into Shell shares back then have today? Let’s crunch the numbers.
At 1,345p per share, they’d have acquired around 1,487 shares (I’m leaving trading costs out). At today’s price of 2,661p, those shares would now be worth around £39,578. That’s nearly double the original investment.
The compounding power of dividends
Capital growth’s only part of the story. Shell’s continued to reward shareholders with dividends. I’ve totted up everything it’s paid to UK investors since 29 March 2021. If my maths’ correct, it works out as £3.47 per share. With 1,487 shares, that amounts to an extra £5,160 in total cash returns.
Adding up both the capital appreciation and dividend income, the total value of the investment today would be around £43,738. That’s a whopping 119% total return over four years.
I’m cherry-picking that performance period. Others won’t have done as well. The key question now is whether Shell can maintain its momentum.
The company benefitted massively from the energy crisis triggered by Russia’s invasion of Ukraine in 2022. Soaring oil and gas prices boosted its revenues and profits. But with energy prices having settled, the stock’s performance has slowed. Over the past year, the shares are up just 9%.
The global energy transition’s a big challenge. Shell’s invested in renewables, but with mixed success.
Just last week, it wrote down $1bn on its US wind business. CEO Wael Sawan’s made it clear that the company’s green energy division must start to deliver meaningful returns.
At a trailing price-to-earnings (P/E) ratio of 7.6, Shell shares don’t look expensive. That’s roughly half the average FTSE 100 P/E of around 15 times.
This suggests the market’s pricing in risk, possibly due to uncertainty over the future of fossil fuels. As ever, where energy prices go in the short term is anybody’s guess. Especially with the world bracing for a potential trade war.
Can it keep rewarding shareholders?
On the income front, the stock currently offers a trailing dividend yield of 4.1%. That’s attractive for investors seeking passive income, although it’s worth remembering dividends are never guaranteed.
In its Q4 results, released on 30 January, Shell announced a 4% dividend hike alongside a $3.5bn share buyback (its 13th consecutive quarterly buyback of $3bn or more). The forward yield’s 4.8%. That’s good, albeit below its average 10-year yield of 5.7%.
However, profits fell 16% to $16.1bn across 2024, raising concerns about whether these payouts can be sustained. Net debt grew by $3.6bn over the quarter, now standing at $38.8bn. However, that’s down from $43.5bn at the start of 2024.
Shell faces challenges but it seems further down the energy transition road than rival BP. Volatility’s baked in, but I think it’s worth considering by investors with the patience to withstand short-term share price volatility.
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Harvey Jones has positions in Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
