I’d buy 3,442 Shell shares to generate an extra £300 of monthly passive income

Shell shares currently have an eye-catching dividend yield of 4.3%. This makes them a great investment option to make some passive income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Side of boat fuelled by gas to liquids, advertising Shell GTL Fuel

Image source: Olaf Kraak via Shell plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The FTSE 100 currently has a dividend yield of 3.5%. Therefore, the best shares in the index to generate a passive income will have a yield above this.

There are plenty of options to choose from. However, one share caught my attention recently: Shell (LSE:SHEL).

The company usually announces its dividend in dollars and later announces the sterling equivalent. On 9 September, it announced this would be 26.15p per share for the quarter.

Should you invest £1,000 in Shell right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Shell made the list?

See the 6 stocks

My income opportunity

I will ignore future foreign exchange differences and assume the 26.15p is the constant dividend going forward. The annualised amount is therefore 104.6p.

Whilst writing this, Shell is trading for £24.45 per share. That means I’ll need to spend £84,156.90 on its shares to make an extra £300 a month (with the understanding that dividends aren’t guaranteed). I appreciate this is an extremely large sum of money that you can’t just find in the back of the couch!

However, I don’t believe this extra income will remain at this level either. Shell has a very strong track record of raising its dividend over time. If I reinvested my dividends back into its shares, this could help accelerate the process.

The risks

Only once since World War II has Shell cut its dividend, which was during the pandemic. This shows the strength of the company to persevere through tough times. However, it must be noted that if a similar event occurred, the firm could be forced into a similar situation.

Back then it reduced its dividend by 66%. All else being equal, if it did the same today, this would equate to me needing £191k to achieve the same £300 a month.

Now, the pandemic was a once-in-a-lifetime event (hopefully!), so I don’t think this will happen again, especially as governments are more prepared for such scenarios.

But the main reason the payout to investors was reduced was because of its effect on oil prices.

Shell has a large exposure to fossil fuels like oil, which the world will eventually trend away from. This is an obvious risk for its future income.

However, we’ve still got a long way to go before the demand for fossil fuels goes away. In fact, it’s meant to rise until at least 2030. This gives the company plenty of time to invest in alternative and cleaner energy.

Now what?

Over the last six months, Shell’s share price has fallen by 10%. This is mostly disappointing, especially as the Footsie has climbed by almost 4%.

Created with Highcharts 11.4.3Shell Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

But this presents an opportunity for an income investor, like myself. To obtain the future stream of dividends from its shares, I can now pay 10% less than what I would have had to six months ago.

With a forward price-to-earnings (P/E) ratio of just 7.8, its shares are also quite cheap. Therefore, if I had the spare cash, I’d buy some today.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Muhammad Cheema has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

3 shares that could help a SIPP double in value

Christopher Ruane discusses a trio of FTSE 100 shares that he thinks investors should consider for their long-term potential to…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

I’ve doubled my money on this growth stock but I’m not selling it any time soon

Uber has been a great investment for Edward Sheldon, rising more than 100% in just two years. He believes the…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

The FTSE 100 is on fire! Yet these 2 stocks still look cheap to me

Despite the FTSE 100 hitting record highs, there’s no shortage of undervalued opportunities across the index, says Ben McPoland.

Read more »

Female student sitting at the steps and using laptop
Investing Articles

Greggs shares: an outstanding bargain after crashing nearly 40%?

Shares of one-time market darling Greggs have been in foul form recently. But is this a once-in-a-blue-moon opportunity for our…

Read more »

Close-up of children holding a planet at the beach
Investing Articles

This FTSE 100 stock’s suddenly become the highest-yielder on the index!

The league table of FTSE 100 (INDEXFTSE:UKX) dividend stocks has a new number one. But our writer explains why there…

Read more »

Rear View Of Woman Holding Man Hand during travel in cappadocia
Investing Articles

Is this under-the-radar UK stock as cheap as its rooms?

Our writer’s been keeping an eye on a little-known UK stock that operates in a niche, but profitable, sector of…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

It’s a ‘Fabulous Friday’ for holders of these FTSE 100 shares!

Four members of the FTSE 100 (INDEXFTSE:UKX) are making their latest dividend payments today (11 July). Our writer takes a…

Read more »

Man riding the bus alone
Investing Articles

Check out this spectacular FTSE 250 stock

UK investors willing to look beyond the FTSE 100 can find some outstanding companies. Online advertising business Baltic Classifieds might…

Read more »