Why I’d sell Royal Dutch Shell to buy this FTSE 100 dividend stock

Royston Wild reveals a FTSE 100 (INDEXFTSE: UKX) dividend hero that he’d buy at the expense of Royal Dutch Shell plc (LON: RDSB).

| 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.

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.

2018 was shaping up to be yet another successful year for the Royal Dutch Shell (LSE: RDSB) stock price. But since striking fresh highs above £28 per share in May, investor appetite has reversed, meaning that the Footsie-listed firm has now lost of all of its gains for the current calendar year.

Even though Brent prices have perked up again over the past month and are once again challenging $80 per barrel, share pickers have been less reluctant to buy or even hold on to Shell as the chatter surrounding possible US-Chinese trade wars has stepped up.

Indeed, the driller was down again on Wednesday as poor services activity data from China followed disappointing manufacturing numbers earlier this week, exacerbating concerns over the impact of President Trump’s fight against what he describes as exploitation of the US by foreign powers.

Should you invest £1,000 in BT 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 BT made the list?

See the 6 stocks

But of course, this isn’t the only threat hanging over the crude price outlook. Indeed, the greater obstacle likely facing Shell in the coming years is the prospect of a sustained oversupply of oil as drilling activity picks up amongst non-OPEC members in particular.

Some may argue that Shell’s forward P/E ratio of 12.1 times bakes in these risks, however, while a corresponding dividend yield of 5.7% provides a compelling reason to invest for many. I would argue though that the following FTSE 100 dividend shares are much safer share selections for long-term investors.

A better dividend buy

Indeed, I’d be very happy to sell out of Shell today to buy shares in Bunzl (LSE: BNZL). Dividend yields aren’t as impressive — the figure for 2018 stands at just 2.1%, for example. And the support services provider is also more expensive, the business changing hands on a prospective P/E ratio of 19.1 times.

But in my opinion, the company is a much better bet than Shell to keep on growing the dividend. I’ve talked about Bunzl’s exceptional diversity before, a quality that has given it the confidence to lift the dividend each and every year for a quarter of a century.

And latest financials convince me that shareholder payouts can keep on marching merrily higher. The business saw revenues roaring 12% higher at constant currencies between January and June, to £4.34bn, while adjusted pre-tax profits rose 10% at stable exchange rates to £257.9m.

The result encouraged Bunzl to lift the interim 9% year-on-year to 15p per share. And there’s plenty of reason to expect profits to continue sailing higher given that it remains active on the acquisitions trail.

It’s spent £132m on M&A in the calendar year to date, the company racking up acquisition number four with the takeover of light catering equipment provider Enor late last month, a move that marks its first foray into the Norwegian marketplace. And its impressive cash generation (operating cash flow rose to £279.7m in the first half) gives Bunzl plenty of firepower to secure more earnings-boosting acquisitions.

Investors need to look past the barnstorming yields that Shell offers right now and consider whether the business will have the might to keep paying such handsome rewards. I am not so sure. But I am convinced that Bunzl is in much better shape to do so in the years ahead.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Royston Wild 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.

More on Investing Articles

Investing Articles

Here’s why the Tesco share price has dropped 18% in a month!

Tesco's share price has lost nearly a fifth of its value since mid-February. Is this FTSE 100 dividend stock now…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Looking for cheap stocks to buy? Here’s one of my favourites to consider for ISA season

Pawnbroker H&T has just published another set of golden trading numbers. Here's why it's one of my favourite cheap shares…

Read more »

Investing Articles

Down over 30% in 2025, is this FTSE 250 stock now an unmissable bargain?

Having finished 2024 in rude health, one FTSE 250 stock is having a very bad 2025. Will Paul Summers consider…

Read more »

Investing Articles

If an investor put £10k into red-hot Vodafone shares 1 month ago here’s what they’d have now…

Vodafone shares have been going down in flames for years, but it's a different story today. Should Harvey Jones buy…

Read more »

Investing Articles

Rolls-Royce shares are up almost 500% in 2 years! Will the bubble burst?

Over the past two years, Rolls-Royce shares have gone parabolic, returning 470% since March 2023. But can the UK’s top…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

3 actionable takeaways from Warren Buffett’s latest letter for stock market investors

Jon Smith reviews some of his favourite points from Warren Buffett's latest letter to investors, including the large cash pile…

Read more »

Investing Articles

I asked ChatGPT how I should invest £1,000 in UK stocks. Here’s what it said!

Charlie Carman turns to artificial intelligence for ideas on how to invest a four-figure sum in UK stocks, with some…

Read more »

Close up view of Electric Car charging and field background
Investing Articles

£10,000 invested in NIO stock 1 year ago is now worth…

NIO stock was a favourite among growth-oriented investors in 2020 and 2021. But it didn’t deliver. Dr James Fox spies…

Read more »