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Analyst claims Shell could raise its dividend – Is SHEL a buy?

Analyst claims Shell could raise its dividend - Is SHEL a buy
Dino Kurbegovic

Energy stocks have done particularly well this year, dominating some sectors in Q1 2022, by rising almost 200%. Still, there may be certain energy stocks that investors should keep an eye on, one of which being Shell PLC (NYSE: SHELL).  

Dan Farb of Mill Pond Capital, in a note to clients, explained his view on Shell’s dividend potential: 

“Shell should reinstate the pre-Covid dividend, that would go a long way to restoring management’s credibility with investors and rerating the stock.”  

In 2020, the company slashed its dividend by 65% when the Covid pandemic destroyed demand for oil. Currently, the company yields 3.6%, maintaining a conservative payout ratio of 20% based on the projected earnings for 2022. 

SHEL share performance and analysis    

Like most energy companies, the shares have been on fire in 2022, up over 30% year-to-date (YTD). Steady trading volumes throughout May, have kept the shares trading above all daily Simple Moving Averages with a likely resistance line created around $58. 

SHELL 20-50-200 SMA lines chart. Source. data. See more stocks here.

Despite having varying opinions on the company’s dividend, most analysts agree on the strong buy consensus for the shares. For the next 12 months, analysts predict that the average share price could reach $68.34, an increase of 16.72% from the current trading price of $58.55.

SHELL  analysts’ price target. Source: TipRanks

Shell earnings beat 

Earnings for Q1 beat estimates while generating huge cash flow to the tune of $10.4 billion for the quarter. Earnings per share (EPS) was $1.20, versus Wall Street expectations of $1.09.

If it wasn’t for Russian headwinds and some debt accrued during 2020, the free cash flow could have amounted to $17,8 billion, roughly 8.3%, of the company’s current market cap.

Guidance given for production going into Q2 was weaker than expected, with gas production increasing by 4%, while refinery utilization is planned to fall from 71% to 69% for Q2.

Shell seems to have a strong earnings spurt ahead of it with rising energy costs globally; in addition to that, it has been one of the rare oil companies that haven’t dragged its feet when it comes to transitioning to renewable sources of energy.

Shell future in renewables.

On April 29, the company announced it is shelling out $1.55 billion to acquire Sprng Energy group, India’s leading renewable power platform. Other such deals are pointing to the fact that Shell is looking to play a major part in the renewable space. 

Whether a dividend increase happens may not be relevant for investors looking to position themselves in an energy giant whose price hasn’t risen to unmanageable levels.

Long-term investors could put greater emphasis on the fact that the company is looking to the future and will most likely play a significant role in energy like it has until now.  

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

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