Purchase of RDSA – Shelling Out for Big Oil

RDS Logo

Shell Logo

Shell – or more correctly Royal Dutch Shell – is a high dividend income machine.  Partly in an effort to move the average yield of my portfolio up slightly I have decided to establish a position in this security.

While I had been considering a purchase of Coca Cola, rather than buying Oil major, the high yield was too tempting.  Oil companies are just so darned cheap in comparison to companies producing consumer goods! KO will have to wait, as all my current investable assets are going into RDSA. RDSA is my second fossil fuel investment, having purchased Exxon Mobil (XOM) some time back.  At this time I have enough funds for a full position of $2500, so this should be a one-time event – no future purchases of Shell are planned.

Item to note, Shell trades with two different ADRs – RDSA and RDSB.  This is a legacy of the original merger between Royal Dutch Petroleum and Shell.  Shell offers a program called the “Scrip Dividend Programme” which allows investors to receive shares as dividends, rather than cash.

For tax reasons it is said to be better to purchase RDSA in my situation, due to the handling of dividends.  I am hoping this proves to be correct, as my brokerage firm is clueless on the subject, but will not know for sure until I see some dividends come in and file a tax return!

Royal Dutch Shell is not a company I expect to demonstrate rapid dividend growth, as for the last few years it has demonstrated lackluster dividend increases.  However, with a starting yield of over 5% I can overlook that.

This particular position gives me respectable dividend income now, and I think it’s good to seek a balance between high current yield and high future growth. I cross my fingers that I haven’t made a foolish decision in the ‘chase for yield’, but time will tell.

Purchase of 38 shares of RDSA at $67.91, for a cost basis of 2,580.58. Dividend yield at time of purchase is 5.30%. Dividend Reinvestment enabled. Initial dividend income $136.80 annually.