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Royal Dutch Shell - The Strongest Dividend You'll Find In A Safe Company


Royal Dutch Shell has had a difficult time recently watching its stock price take a significant hit.

However, the company's merger with the BG Group will be immediately helpful to the company's reserves and production.

I recommend investors open a position in this high-yielding company at present prices.


Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) is a multinational oil and gas company focusing primarily in the upstream business. The company is headquartered in the Netherlands but is incorporated in the United Kingdom. Royal Dutch Shell is one of the six oil and natural gas supermajors with a 7.25% dividend yield coming out to $3.76 in annual dividends per share.

However, Royal Dutch Shell has had a more difficult time than most recently. The company is one of the few oil majors that doesn't have the dividend history associated with its competitors Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM). At the same time, the company has more of a reputation for undertaking large and expensive projects which are detrimental to its future cash flow.


The 2010 Deepwater Horizon Oil Spill highlighted the dangers, even if towards the beginning of a bull market in oil prices, of having a major accident. After just having recovered in 2009, the 2010-2014 time period represents the most recent oil bull market. Yet, since the spill at the beginning, the enormous fines have caused British Petroleum's (NYSE:BP) stock and earnings to lag behind its peers.

Royal Dutch Shell has a relatively strong safety record that has been consistently improving over the past decade. The company's injuries per million working hours has been steadily decreasing from just over 2 in 2005 down to 1 in the most recent year. At the same time, the company's oil spills have been decreasing and the company's processes have been becoming more secure.


Royal Dutch Shell has entered full crisis management mode as it attempts to handle the recent crash through lower spending while at the same time integrating itself with the BG Group.

Royal Dutch Shell Roadmap - Royal Dutch Shell Investor Presentation

At the same time, the company has been taking prudent steps to improve its position during the oil crash. The company became the first major to make an acquisition in a long time when the company chose to acquire BG Group, although it is widely agreed that the company chose to acquire BG group too early into the crisis.

The company has also been reducing operating costs and selling tens of billions of dollars of massively valuable assets to raise the necessary capital. The company plans to continue reducing capital investment while putting additional money into the valuable projects run by BG Group. While the acquisition may not have had the best timing, Royal Dutch Shell and the combined BG Group will make large amounts of profits.

Royal Dutch Shell Costs - Royal Dutch Shell Investor Presentation

The above graphic gives some perspective of the scale of Royal Dutch Shell's spending cuts; both operating costs and capital investment. From the start of the crash to this year, Royal Dutch Shell's operating costs will drop by 15% from a headcount reduction of 10,000 people.

At the...