The Shell (LSE: SHEL) share price has been low on gas lately. It’s inched forwards just 5% over the last year.
Those who invested five years ago are still reeling from an exhilarating ride. Shell shares are up nearly 150% in that time, with dividends on top.
March 2020 was the month when Covid struck and the world went into lockdown, sending the oil price below $30 a barrel. Tankers were adrift, searching for buyers. Oil stocks were also adrift. It was a brilliant time to fill up on Shell, for those brave enough to do so.
Why has this FTSE 100 stock floundered?
The 2022 energy shock following Russia’s invasion of Ukraine provided a significant boost. Yet oil prices are sliding again, currently hovering around $70 a barrel.
Sluggish economic growth in major markets, notably China, has hit demand, while oil output has climbed and the global push towards renewables has driven up overall energy supply.
As ever, oil price movements remain impossible to second guess. Peace in Ukraine, an Israeli attack on Iran, or an OPEC+ production surprise could send it whizzing off in any direction.
Shell is still making billions, just not as many of them as before. Full-year 2024 profits fell 16% to $23.7bn, which the board pinned on lower prices and reduced margins in liquefied natural gas (LNG).
Despite this, the company announced a 4% increase in its quarterly dividend and unveiled another $3.5bn quarterly share buyback programme.
That’s incredibly generous. Arguably, too generous. Shell’s share buybacks totalled $22.5bn in 2024, consuming all but $1.2bn of 2024’s profits. How long can its largesse continue?
Shell watered down its green transition plans in a strategy update on 14 March, as CEO Wael Sawan pledged to keep building its LNG business while holding oil production steady until 2030.
Brokers remain optimistic about Shell’s prospects. The 19 analysts offering one-year share price forecasts have produced a median target of 3,247p. If correct, that’s an increase of just over 20% from today’s 2,693p.
Combined with a forecast dividend yield of around 4.2%, this would give investors a total return of around 25% in 2025. If the share price growth comes through, that is.
Investors can expect more volatility
Equally impressively, 23 brokers have rated Shell as a Strong Buy, with another four recommending Buy and four suggesting Hold. That’s a pretty solid consensus. None advise selling.
Shell has a modest valuation, with a price-to-earnings ratio of just 9.2. The shares are well worth considering for investors looking to increase their exposure to the oil and gas sector, but there are plenty of risks.
Climate concerns aren’t going away. While “drill, baby drill” could boost the oil sector, it could also backfire by boosting supply and driving down the price.
There’s gloom in green circles about the pace of the transition, but there’s also an awful lot going on behind the scenes. China is going to deliver an endless flow of cut-price electric vehicles.
I still think the world will take time to get over it’s reliance on fossil fuels, but I’m not quite as sure of Shell as I used to be.
