FTSE 100 dividend stock Shell’s slumped in 2019! Time to buy for your 2020 ISA?

Could Shell and its 7% dividend yield be great buys for 2020? Royston Wild takes a look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I recently explained why Coca-Cola HBC could be a FTSE 100 stock that’ll turn from a squib in 2019 to a full-fledged firework in 2020.

While the soft drinks giant has seen its share price stagnate this year, Royal Dutch Shell (LSE: RDSB) has performed even worse as growing fears over the global economy has prompted waves of investor selling. Its share price has fallen 9% so far in 2019 but, unlike the Coke maker, it’s not a company I’m tempted to buy for even a second.

The supply surge

Brent oil prices have grown steadily since plunging back under the critical $60 per barrel in late September. In fact the energy benchmark is about 10 bucks more expensive than it was at the start of the year. But market makers are fearing what 2020 holds for profits over at Shell and its peers as millions of barrels of unwanted material lurk on the horizon.

According to the International Energy Agency, supply from non-OPEC nations is about to surge. It estimates that these countries will pull 2.3m barrels of the black stuff out of the ground each day next year, up from the 1.8m barrels estimated for 2019, because of rising production from the US, Brazil, Norway, and Guyana. Shale production in the US in particular has surged in recent times, and is predicted to climb to 12.3bn barrels this year from the record 11bn barrels in 2018.

The OPEC+ group (that’s the OPEC cluster of nations plus a handful of other major producers like Russia, Mexico, and Kazakhstan) vowed to cut production again from 1 January at their latest meeting this month. Output will be reduced by an extra 500,000 barrels per day in the three months to March, with total cuts now estimated at 1.7m barrels.

Market mayhem

Such action, though, threatens to be overshadowed by likely falls in energy consumption over the next year, as tough economic conditions in OECD nations and major emerging markets – environments that threaten to be worsened should US-led trade wars continue – cast a pall over the global oil demand outlook.

The IEA believes, for example, that the oil market will remain in surplus to the tune of 700,000 barrels a day in the first quarter. And as the boffins over at banking giant ING note: “[these] numbers do call into question how much more upside we could see in prices going into 2020, particularly given the fact that it will not take long for the market to focus on the larger surplus that is estimated over the second quarter in the absence of OPEC+ action”.

It doesn’t matter to me that Shell trades on a rock-bottom forward price-to-earnings ratio of 10 times and boasts a giant 7% corresponding dividend yield, too. The risk of more serious share price weakness in 2020 makes it a risk too far, and I for one won’t be buying in any time soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild 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.

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »