Shell shares go ex-dividend on 15 May. Should investors consider grabbing its 4.5% yield now?
Shell (LSE: SHEL) shares go ex-dividend in just one week (15 May). From that date, investors who buy in won’t receive the next shareholder payout, due on 23 June. That dividend’s worth 35.8 US cents per share, roughly 26.95p at today’s exchange rate.
If someone put £5,000 into Shell at today’s price of 2,428p, they’d pick up 205 shares. That’s £55.25 landing in their account next month.
Not enormous, but Shell pays quarterly. Over a year, that £5k could deliver around £220 in dividends. Our investor may get a little more income next year, if the board lifts payouts in 2026. Plus reinvested dividends will generate dividends themselves.
Let the income begin
Shares typically dip slightly when they go ex-dividend, to reflect the value lost. So maybe I’m overthinking this.
That said, I unwittingly bought a high-yielding FTSE 100 income stock one day after it went ex-dividend, and felt a bit of a chump.
There’s also something satisfying about seeing the first dividend roll in knowing that, with luck, there are many more to come.
So are Shell shares worth owning at all? Over the past year they’ve lost 16% of their value. Even with a 4.5% trailing yield, that’s disappointing.
Slowing growth in China and tariffs from Trump are both taking the wind out of global trade. OPEC+ is preparing to reverse production cuts from June, and Brent is close to 2025 lows at $61 a barrel.
Shell’s troubles may attract contrarian investors. Energy stocks tend to be cyclical. The best time to buy is usually when prices, shares and sentiment are all down. As they are now.
Shell’s price-to-earnings ratio is just 8.6. That’s low both by its standards and the FTSE 100 as a whole, which is above 15.
Warning: being contrarian isn’t easy. Struggling stocks can take a long time to recover. They may never recover.
Latest results beat forecasts
Shell’s Q1 results, published on 2 May, were solid though. Adjusted earnings came in at $5.58bn, comfortably beating forecasts of $4.96bn. Revenues reached $69.2bn and the board launched a fresh $3.5bn share buyback. It clearly sees value at today’s levels. The dividend was unchanged at 35.8 US cents.
Shell’s focus on gas rather than just oil may also be helping insulate it from net zero confusion. But as with any stock, there are plenty of risks.
Oil prices could fall much further if demand weakens or supply continues rising. The energy transition will be more expensive with false starts and blind alleys. A big renewable energy breakthrough could smash fossil fuels.
Analysts are forecasting a 12-month share price target of 3,046p. While these can never be relied upon, it would mark a potential gain of over 25% from today’s 2,428p. Add in the yield, and total returns could approach 30%.
Anybody thinking of buying this stock should take a much longer view than just 12 months. I think Shell’s well worth considering but, as with any stock, investors should give it at least five years to prove its worth. While reinvesting every dividend, every quarter, to build their stake while waiting for brighter days. They’ll come, given time.
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More reading
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Harvey Jones has no position in any of the shares mentioned. 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.
