Royal Dutch Shell – nice dividend but range bound

Jul 21st, 2010 – Comment

The best outcome for RDS is for a steady rise in the price of oil and natural gas.


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shell

Hi Lou;

I saw your comments on IMO-T.

Shell has a much more attractive dividend rate which I figure pays me to wait for a breakout.

Am I kidding myself?

Thanks,

Tom

 

Hi Tom,

Your investment in Royal Dutch Shell Plc (RDS.B NYSE) with a dividend yield of 6.38% certainly is paying you an attractive rate to wait. The recent problems at British Petroleum illustrate the risk even when you are investing in one of the oil majors. In addition you need to watch the foreign exchange risk having an investment in U.S. dollars.

RDS faces the same challenges as any oil company and that’s to find new reserves to replace what they are pumping out of the ground. Much like the situation at Imperial Oil Ltd ( IMO TSX) RDS has to find an ocean of new oil to move the needle on their reserves a fraction of an inch. The best outcome for RDS is for a steady rise in the price of oil and natural gas.

 

rds

The three year chart provides a view of the aggressive sell off that followed the retreat of oil from the highs of $150 per barrel in the summer of 2008. There is resistance at $60 and support at $47.50. RDS is operating on the assumption that oil will trade in a range between $50 per barrel and $90 per barrel. 

 

 

 

 

 

oil8

The oil chart indicates that there is resistance at $90 but its clear that there is fairly strong support at $70. The support at $70 suggests to me that it would take a significant event to take us to $50 and that it must be a worst case scenario forecast internally

 

 

 

 

rds2

The six month chart clearly indicates the retreat in the price of the stock as the price of oil retreated in April of 2010. Which also came as RDS approached $60.00. In July you can see the bounce off of $47.50 and the run to $54.00 before the pull back to the close on July 20.

 

 

 

At this point I think the best case scenario is for you to continue to collect your dividend while watching the support and resistance levels on both the stocksand oil. I have said it before and will say it again its a traders market so be prepared for range bound trading until there is a breakout or breakdown. You might want to consider trading this one if you are looking to boost your returns.

 

Happy Capitalism!

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