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Oct. 14, 2016, 12:01 a.m. EDT

This environmentally friendly oil super major yields 6.85%

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By Nigam Arora


AFP/Getty Images

My long-time readers know that my calls tend to be measured, and I am not given to hyperbole. So why do I call Royal Dutch Shell /zigman2/quotes/207682964/composite RDS.B +1.74%  the best super major oil company?

There are six super major oil companies: BP Plc /zigman2/quotes/207305210/composite BP +1.79% , ConocoPhillips /zigman2/quotes/207605056/composite COP +0.03% , Chevron /zigman2/quotes/205871374/composite CVX +2.92% , Royal Dutch Shell, Total SA /zigman2/quotes/201824152/composite TOT +3.33% and Exxon Mobil /zigman2/quotes/204455864/composite XOM +1.93% .

In our analysis at The Arora Report, in terms of future-projected returns for the long-term investor, Royal Dutch Shell is simply the best among the super majors. As of this writing, it is trading at 54.89 and yielding 6.85%. The Arora Report target zone is 68.00 to 76.00. The midpoint of the target zone means 31% capital appreciation. Further, the stock has the potential to about double over the next four to five years if oil and natural gas prices recover.

When bad is good

Paradoxically in the world of investments, what seems bad on the surface is often good for the discerning investors. The bad depresses the stock price. Those investors who are able to get in at the depressed price make huge profits when things turn around.

Royal Dutch Shell is a prime example of the foregoing. The bad right now is that the company has a negative free cash flow and does not cover its dividend. The infographics tells the story of the cash flow along with other relevant information.

Please click here for free cash flow and other relevant financial data infographic .

Going from bad to good means big change; in our ZYX Change Method, five stages of change are defined. Royal Dutch Shell at present is at stage one.

Please click here for Five Stages of Change as defined by ZYX Change Method .

The plan

Royal Dutch Shell has a rock solid plan to increase the free cash flow. In our estimation, if oil and natural-gas prices cooperate, Shell might reach about $11 per share free cash flow by 2020-2021. At present, the dividend is only $3.76 per share. Assuming Shell were to succeed, the dividend might be increased, and the stock may about double from here.

Shell is reducing operating costs and capital investments. The company is also engaging in divestments to raise cash. Infographics tell the story.

Please click here for infographics of the divestment program .

Please click here for infographics of cost reduction .

Please click here for infographics of reduced capital spending .

/zigman2/quotes/207682964/composite
US : U.S.: NYSE
$ 25.12
+0.43 +1.74%
Volume: 3.17M
Sept. 28, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
10.03%
Market Cap
$97.82 billion
Rev. per Employee
$4.75M
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/zigman2/quotes/207305210/composite
US : U.S.: NYSE
$ 18.18
+0.32 +1.79%
Volume: 14.46M
Sept. 28, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
11.94%
Market Cap
$59.58 billion
Rev. per Employee
$4.03M
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/zigman2/quotes/207605056/composite
US : U.S.: NYSE
$ 33.71
+0.01 +0.03%
Volume: 8.96M
Sept. 28, 2020 4:00p
P/E Ratio
16.54
Dividend Yield
4.98%
Market Cap
$36.15 billion
Rev. per Employee
$3.37M
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/zigman2/quotes/205871374/composite
US : U.S.: NYSE
$ 73.93
+2.10 +2.92%
Volume: 12.86M
Sept. 28, 2020 4:02p
P/E Ratio
N/A
Dividend Yield
6.98%
Market Cap
$134.13 billion
Rev. per Employee
$3.27M
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/zigman2/quotes/201824152/composite
US : U.S.: NYSE
$ 33.79
+1.09 +3.33%
Volume: 3.45M
Sept. 28, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$85.56 billion
Rev. per Employee
$1.87M
loading...
/zigman2/quotes/204455864/composite
US : U.S.: NYSE
$ 35.31
+0.67 +1.93%
Volume: 23.40M
Sept. 28, 2020 4:02p
P/E Ratio
21.03
Dividend Yield
9.86%
Market Cap
$146.47 billion
Rev. per Employee
$3.93M
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