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Questor share tips for 2011: Royal Dutch Shell

There are three main reasons that Royal Dutch Shell has made it into Questor’s tips of the year – the first being that it is not BP.

Garry White

By Garry White, Questor Editor 6:00AM GMT 03 Jan 2011

£100 OIL
Royal Dutch Shell
£21.15

There are three main reasons that Royal Dutch Shell has made it into Questor’s tips of the year – the first being that it is not BP.

BP is likely to rebase its dividend when it result payments and there is still no clarity on the total amount of liabilities that the group will face following the Macondo oil spill.

The second reason is £100 oil.

Questor is not alone in thinking it is likely that we will see the oil price move into triple digits during 2011. This call has been made by JP Morgan, Goldman Sachs, Morgan Stanley and others.

In 2008 the price charge ahead to near $150 a barrel. This boosted Shell’s quarterly revenues from $90.7bn (£58.4bn) in the third quarter of 2007 to $131.4bn in the second quarter of 2008 – a 45pc rise.

This is not a prediction of $150 oil – but this gives an indication of the impact of a high oil price. This will be great for the group’s cashflow.

The third reason is its growth plans. When Shell unveiled its new strategy in March it said that the growth plans should increase cashflow by 50pc between 2009 and 2012 if oil was at $60 barrel oil and by 80pc at $80 a barrel. Prices next year are likely to average a level higher than $80.

Shell is also yielding a very respectable 5.1pc and the 2011 earning multiple is just 8.9. This yield is attractive in itself, and there is the prospect of capital gains as well. The company is likely to reveal progress towards it strategic goals throughout the year – which does not appear to be fully accounted for in the share price.

UK investors looking to gain exposure through Shell should buy the “B” shares because dividends paid on class “A” shares have a Dutch source for tax purposes.

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