The Shell (LSE: SHEL) share price has dipped and looks pretty cheap today. I’m tempted to buy it, but another FTSE 100 stock has caught my eye.
As any motorist will tell us, petrol prices are falling. They’ve just hit their lowest level in two years, the RAC says. Brent crude has plunged from $96.55 a barrel on 28 September to $76.95 today, a drop of 20% as fears of Israel-Hamas contagion fade. That’s great news for drivers, bad news for investors in oil and gas giant Shell.
It’s not desperately bad news, though. Shell can still break even with oil at around $30 a barrel. It just won’t rack up the same massive profits, which more than doubled to a blistering $64.8bn before tax in 2022.
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Huge profits
The stock is down 5.03% over the last month, but is still up 9.33% over one year and 83.18% over three. It trades at a forward P/E of 8.6% for 2023, so looks good value too. But whatever happened to the yield?
Shell was a true Dividend Aristocrat for decades, typically paying income 5% to 6% a year, but today it yields just 3.45%. Management rebased the dividend during the pandemic, slashing it from $1.88 to 65 cents per share in 2020. It’s since edged up to 89 cents in 2021 and $1.04 in 2022. Markets now forecast a yield of 3.99% in 2023 and 4.36% in 2024. At least it’s heading in the right direction.
With the oil price resisting Saudi attempts to cut production and a recession looming, Shell could be in for a bumpy 2024. It’s also threatened by the net zero drive. However, the race to green energy has hit a few bumps in the road too. Plus Shell has a fast-growing renewables arm of its own.
There’s a place for Shell in my portfolio and I’ll keep a watching brief for 2024. But with limited funds at my disposal there’s a stock I’d rather buy first.
Insurance conglomerate Phoenix Group Holdings (LSE: PHNX) now offers one of the biggest yields on the entire FTSE 100 of a stunning 9.79%. The stock is even cheaper than Shell, trading at 6.38 times earnings.
Incredible income
The Phoenix share price has picked up lately, jumping 6% last week as hopes grow that interest rates have peaked and stock markets will revive. Recent stock market volatility has knocked the value of assets it holds to protect its insurance liabilities. Phoenix shares are still down 15.22% over one year and 27.15% over three. But there’s still plenty of scope for recovery here.
Phoenix looks set to generate enough cash to maintain its super-sized yield. Last month, the board hiked its full-year cash generation targets. However, it needs a steady stream of new acquisitions if it is to keep the revenues flowing and growing. Otherwise the dividend and share price could head south.
While Shell has more share price growth potential over time, it can’t compete on income. Phoenix is forecast to year 10.2% in 2023 and 10.4% in 2024. Net cash of £2.23bn provides comfort. If I can rustle up the cash, I’ll buy it as a Christmas present to myself. Shell will have to wait until 2024.
