Dutch Discount Bin: Royal Dutch Shell plc (ADR) (RDS.A)

Although it must be said that most additions to Shell and ExxonMobil reserves consist of natural gas, which is considered of less value than crude oil and NGL. A weakness of Shell is the low number of years before it runs out of reserves. If no oil company would find a single barrel of oil from now on, Exxon would outlast Shell by over 5 years.

On top of the things mentioned before to take into account, I can add that Royal Dutch Shell has never skipped or lowered its dividend since WWII. They know this reputation is of importance to investors and will not squander it lightly. Thus, it is a good sign that Shell has recently increased its quarterly dividend by 5%. This demonstrates management’s confidence that the business is healthy enough to afford this perpetual outflow of cash, which is about 35% of earnings right now. The dividend yield for Shell is at around 5%, depending on the type of share, while it’s just 2.8% for Exxon. Total and Chevron’s yields are in the middle with 4.5 and 3.4 percent respectively.

Bottom line

From the valuation metrics and proven reserves, a clear picture of the oil industry arises. ExxonMobil demonstrates operational excellence and is somewhat priced accordingly, while Total performs much worse but still has some credibility with investors. Shell has mixed operational performance measures but a great stock price. Chevron is quite the average of the other three. So is Royal Dutch Shell an undervalued bargain? I think so. And if Shell manages stay on track, the current stock price and dividend yield provide a great deal. If, however, you want an impressive track record of operational superiority and are not reluctant to pay a premium for that, ExxonMobil is still the stock for you.

The article Dutch Discount Bin: Royal Dutch Shell originally appeared on Fool.com and is written by Robbert Manders.

Robbert Manders has a long position in Royal Dutch Shell.  Motley Fool recommends Chevron and Total SA. (ADR). Robbert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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