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Shell and BP shares are rising again. Is it too late to buy them?

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The price of oil is rising again and both BP (LSE:BP) shares and shell Shares are rising as a result, as they often do.

Brent crude has now climbed above $90 a barrel as Saudi Arabia tries to push the price up to $100 by cutting production. Over the past week, the BP share price has climbed 6.11%, while the Shell share price has gained 3.77%.

oil price is increasing

Measured in one year, shared in two FTSE 100 The major oil companies are up 16.76% and 10.24% respectively. Investors who bought them three years ago have doubled their money, as both have been big beneficiaries of energy price shocks. Is it still worth buying them today?

The price of oil isn’t the only factor driving BP and Shell shares, but it has a huge impact. There is little change in their costs when oil is more expensive, so most of the increase comes as a net profit.

Additionally, they have tightened their operations since the last time oil prices dropped, and both have a break-even point of $40 a barrel or less. The downside of today’s high oil price is that it will reignite demand for another windfall tax.

green issues

Campaigners don’t care about BP and Shell when they are losing money, but they hate to do it. Every quarter of bumper profits brings credible voices of disapproval, yet windfall taxes in Britain can only go so far.

BP and Shell are headquartered in Britain, but make most of their profits elsewhere. BP owes $2.2 billion in tax in the UK in 2022, but that is just a fraction of its $15 billion global tax bill. Shell paid only $134 million of its $13 billion global tax bill to HMRC.

Both companies are under immense pressure to go green, but they have surprisingly resisted it. Fossil fuels are still their business. Some have warned that they could miss out as renewable energy becomes cheaper. This is not the case yet. Peak oil never happened. We are far from seeing peak demand for oil.

income slip

Investors who have become used to BP and Shell paying yields of around 6% per year will be disappointed by today’s yields of 3.87% times 3.45% respectively. This isn’t entirely due to their strong share price growth. BP cut its dividend from 41 US cents to 26 cents in 2020 as the pandemic destroyed profits. Last year, it paid just 24 cents per share. Shell also revalued to 65 cents from $1.88, although its per share dividend has risen sharply to $1.04 in 2022.

BP is expected to yield 4.34% in 2023 and 4.65% in 2024. The business looks good value at 6.84 times forecast earnings. Shale is expected to yield between 4.11% and 4.49%. It is valued at 8.45 times 2023 earnings.

We cannot assume that oil prices will continue to rise. It slipped from its recent 10-month high on fears of China’s slowing economy and a stronger US dollar (which makes oil more expensive for foreign buyers). There is also concern about global recession.

Obviously, I should have bought BP and Shell three years ago. I do not expect such a bumper rise in the share price in the next three years. But they remain great core portfolio holdings and are still worth considering today.

Post Shell and BP shares are rising again. Is it too late to buy them? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any stocks mentioned. The Motley Fool UK has no position in any stocks mentioned. The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights can make us better investors.

Motley Fool UK 2023


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