2 high-yielding FTSE 100 shares I’d buy before the price of oil rises again

Higher oil prices are boosting energy giants like BP and Shell, but I see them as worthwhile investments even in less volatile times.

| 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.

The worrying situation in Iran and the escalating tensions in the Middle East have pushed up oil prices around the world. Investors who bought energy shares over the past few months are sitting on handsome gains, but here at the Motley Fool, we like to take a longer-term view of investing 

It’s worth noting that the price of oil has only shifted along with investor sentiment but for the moment, the supply-demand dynamics of the actual commodity remain unchanged. This means the price could escalate much higher if the supply chain is disrupted or certain countries start hoarding oil strategically. 

In this scenario, I believe two FTSE 100 energy companies could be more in demand, but I like them now for their high yields and determination to become more efficient businesses. 

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

See the 6 stocks

Royal Dutch 

Royal Dutch Shell (LSE: RDSB) shares have gained nearly 3.9% over the past five days in response to the current situation, but I have to say that I feel it deserves to trade higher anyway. The oil giant was clearly trading at a discount not too long ago. Now the price has caught up to the behemoth’s long-term fundamentals, while the dividend yield remains impressively high at 6.2%. 

After a year of selling off assets in the Middle East and tightening its belt in anticipation of lower oil consumption, Shell is now a much more efficient energy producer and distributor. My Fool colleague G A Chester forecast 25% earnings per share growth and a price-to-earnings growth (PEG) ratio of 0.4 for 2020. 

However, he made his predictions in mid-2019. Since then, the price of oil has moved higher while the number of Shell shares outstanding has dropped as a result of buybacks. The company’s cash flow for 2020 could be higher than anticipated. In other words, the shares are more valuable now, making it the perfect time to add this heavyweight to your watch list.  

BP

BP (LSE: BP) is another key beneficiary of higher oil prices. The shares are up 6.4% since the start of the year, while the dividend yield remains attractively high at around 6.5%.

My Fool colleague Paul Summers estimated a dividend of 32p for 2020, which he says is covered 1.4 times by estimated earnings for the year. However, he made those predictions when the price of Brent Crude was hovering around $64, while the current price is nearly $70. 

In other words, BP’s growth and dividend coverage could be better than expected, making the share an undervalued income opportunity for yield-hungry and risk-averse investors like me. 

What I like about BP, beyond its robust dividend and attractive valuation, is the fact that it is also transitioning to a more diverse business model by adding renewable energy to the mix. The company is already one of the largest natural gas suppliers in the world and has deployed hundreds of millions into acquiring wind farms across the US. 

Foolish takeaway

Oil and gas giants like Royal Dutch Shell and BP are in an interesting position in 2020. They’ve spent years reducing their costs and making their operations efficient and when the oil price rises, they benefit. We all hope the conflict with Iran can be resolved soon and even if the oil price dips again, I still see these two firms as worthy investments.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

VisheshR 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

Blue NIO sports car in Oslo showroom
US Stock

Is NIO stock an unmissable bargain below $4?

Jon Smith addresses some of the recent chatter about NIO stock and explains why he's not convinced now's the best…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

£10,000 invested in Greggs shares today could deliver £363 in dividends in 2027

Greggs shares have dipped significantly over the past 12 months, but this has pushed the dividend yield way up, creating…

Read more »

Tesla car at super charger station
Investing Articles

More bad news! Is it now game over for Tesla stock?

Tesla stock is still trading at a mighty premium, despite more recent negative developments. Yet there are some bright spots…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Down 29% in a year, meet the S&P 500 stock I’m considering buying June

UK investors might not be familiar with Danaher. But the S&P 500 stock is top of Stephen Wright’s buying list…

Read more »

Bournemouth at night with a fireworks display from the pier
Investing Articles

Up 45% with a P/E just over 12 – this FTSE 250 stock is on fire!

Harvey Jones is kicking himself for failing to buy this FTSE 250 stock last October. It’s been the perfect way…

Read more »

Group of friends meet up in a pub
Investing Articles

Down 50%, are Diageo shares a bargain in plain sight?

With the shares trading at multi-year lows, this writer examines the latest trading update from Diageo, together with its long-term…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

3 reasons to consider HSBC shares for passive income

Aiming to generate extra passive income? This writer thinks HSBC shares from the FTSE 100 index are worth a look…

Read more »

US Tariffs street sign
Investing Articles

£10,000 invested in Apple stock 3 months ago is now worth…

This writer is wondering if he should add Apple to his Stocks and Shares ISA portfolio while it's currently under…

Read more »