Royal Dutch Shell plc (ADR) (RDS.B), Total SA (ADR) (TOT), Eni SpA (ADR) (E) – BlackRock Sees Market Rotation: Part 1

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Royal Dutch Shell plc (ADR) (NYSE:RDS.A)BlackRock’s chief investment strategist believes that foreign stocks and the energy sector are both good places to look right now. To find a few names, I reviewed the latest semi-annual report for BlackRock Global Dividend Income Fund. Three names that stuck out were Royal Dutch Shell plc (ADR) (NYSE:RDS.B), Total SA (ADR) (NYSE:TOT), and Eni SpA (ADR) (NYSE:E).

The Perfect Fund for Ideas

Russ Koesterich, chief investment strategist at BlackRock, believes that recent trends suggest a rotation toward laggard sectors like energy. He also notes that foreign stocks in developed markets look more attractive than domestic stocks.

Looking for income ideas at the firm, I reviewed the semi-annual report for BlackRock Global Dividend Income Fund. The fund seeks out “high-quality companies with proven records of paying and growing dividends.” Three companies in the portfolio that met Koesterich’s energy and foreign views include:

Two to One

Royal Dutch Shell plc (ADR) (NYSE:RDS.B) is an international oil giant. Management believes the shares are “attractively valued.” The company has a dual share structure that is a remnant of the days when it was two separate, but connected, companies. Today the two share classes track the single entity’s shares as they trade on two different exchanges. The only difference is the foreign withholding tax on dividends on the B shares, which is why the share class tends to trade with a higher yield. Foreign taxes can be recouped at tax time.

Royal Dutch Shell plc (ADR) (NYSE:RDS.B)’s shares yield around 5% and the company has a history of regular annual dividend increases. It is one of the highest yielding oil majors. The reason for this is the company’s investment in U.S. natural gas. With gas prices near all time lows, that move has proven a big drag on the top and bottom lines.

However, natural gas isn’t a short-term investment and the company has the financial strength to ride out the hard times. Debt made up only about 15% of the capital structure at the start of 2013. Moreover, the company had over $18 billion in cash.

Royal Dutch Shell plc (ADR) (NYSE:RDS.B) is projecting that natural gas will supplant coal as the number two worldwide energy source. Low prices in The United States are an anomaly in the world because this country lacks a material export market for the commodity. As that infrastructure is built out and natural gas is used to power more electric plants, factories, and vehicles, demand and pricing should recover.

Meanwhile, investors get paid to wait. And the company is investing in oil projects, too, that should come on stream over the next couple of years.

A Tough Market

Total SA (ADR) (NYSE:TOT) hails from France. Although it is a global company, Europe is an important market. The financial difficulties in that region make daily headlines, so it’s no wonder that the shares remain depressed. However, that has left the company with an over 5% dividend yield.

Despite the difficult environment, Total SA (ADR) (NYSE:TOT) has been investing for the future. For example, between 2007 to 2009 the company replaced only 75% of the oil it pulled out of the ground with new reserves. A renewed focus on drilling, however, brought that average up to 136% between 2010 and 2012. Add to this that, like Royal Dutch Shell plc (ADR) (NYSE:RDS.B), Total SA (ADR) (NYSE:TOT) is one of the world’s largest liquified natural gas companies, and the investing taking place today looks likely to pay dividends for years to come.

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