I’d buy FTSE 100 giant Royal Dutch Shell plc for its dividends today

A Shell fuel station

Right through the oil price crash, the big question has been whether Royal Dutch Shell (LSE: RDSB), along with fellow oil giant BP, would keep on paying its dividend. BP largely insisted it would do, while Shell pretty much kept quiet about it while just carrying on handing over the cash.

On Thursday, Shell announced a second quarter dividend of 47 US cents per share, giving us a total for the first half of 94 cents, and strongly supporting the expected 188 cents per share for the full year. That would provide a total yield of better than 7% — still not quite covered by predicted earnings this year, though cover should be back by 2018.

And if there are still any naysayers out there who think Shell’s dividend is likely to be cut now, well, I don’t really know what to say to you.

Impressive cash flow

Percentage changes in figures aren’t too helpful at this sector turnaround stage, but the key indications for me are a return to strong cash flow from operating activities of $20.8bn for the half, and free cash flow of $17.3bn (from a free cash outflow a year previously).

Also, chief executive Ben van Beurden pointed out that operational cash flow of $38bn over the past 12 months has more than covered the firm’s cash dividend, and that highlights something that should help soothe dividend fears. Shell offers a scrip dividend scheme in which its investors can take additional shares in place of cash (which is most definitely what I’d do), and that significantly reduces the cash demands on the company.

A forward P/E of around 15, dropping to 13 on 2018 forecasts, and healthy PEG growth indications? This could be the last time to buy Shell shares at such a bargain price.

Another cracking dividend

I hate the TV ads (“That’s right, always looking out for the customer“), but I do like Admiral Group (LSE: ADM) as a company and I like the look of its shares. 

Admiral specialises in offering car insurance to younger drivers and to those traditionally stung with ludicrously high premiums by the rest of the sector, and that’s a huge market. And judging by the cash the company has been generating and paying out to its shareholders, it’s a very profitable segment to be targeting.

The year ended December 2016 produced a total dividend of 114.4p per share (including ordinary and special dividends), and if that is repeated for the current year, we’d be looking at a yield of 5.6% on the current share price of 2,049p. 

Customers growing

Customer numbers keep on rising, with a 16% hike to more than 5m last year, and investors will be looking for that trend to continue this year — first-half results are due on 16 August.

Forecasts suggest a 40% rise in earnings per share this time, which would put Admiral shares on a P/E of more than 18, though that would drop to about 17.5 by 2018. That’s higher than the Footsie average, but I think it’s very fair value for a company pumping out such impressive amounts of cash via dividends.

General insurance can be risky in the short term, but is almost always a good long-term investment bet. I’d rate Admiral’s simple car-insurance model as better than that — and the shares are definitely a bargain in my book.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell. 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.

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