As Shell’s share price continues to fall despite strong Q3 results, should I buy more?

A shell‘s (LSE: SHEL) share price has not seen a positive impact from what I thought were strong Q3 2024 results.

Adjusted earnings (the company’s net profit number) rose 12% year-on-year to $6.03bn (£4.76bn). They also beat analysts’ estimates of $5.36bn.

Good and a 13% fall in its total debt to $ 35.23bn – now the lowest since 2015. Another improvement was that cash flow from operations rose 19% year-on-year to $14.68bn.

Are stocks less valuable right now?

Analysts predict that Shell’s earnings will increase by 5.5% annually until the end of 2026. And it is earnings growth that ultimately drives stock prices and company profits over time.

The main risk for the oil and gas giant is that global energy prices remain bearish. This has been the main reason for its lackluster share price.

However, I think China’s economy will strengthen over time, and it is the world’s largest oil importer. I also think that the transition to green energy will take longer than most people think. Both factors are bullish for long-term oil prices.

As it stands, Shell looks worthless to me on a key price-to-earnings ratio of 12.8. The team’s average against him is 15.6.

Another share purchase

In its latest results, Shell also announced another $3.5bn share buyback, which is expected to be completed by 30 January 2025. It is the 12th quarter in a row that it has announced $3bn or more in buybacks.

These broadly support share prices, but as a shareholder I would always prefer that such money be used to increase dividends instead. The long-term capital increase from a higher dividend can be much greater than the short-term increase in share price.

This is even more so when the dividends from the stock are combined. This includes dividends paid that are used to buy more stock that we paid them.

A small increase in benefits

That said, Shell’s earnings will rise slightly from now to 2026. In 2023, it paid a total of $1.29, which is equal to £1.0232. This yields 4% on the current share price of £25.49.

Analysts forecast the payout to rise to 108.7p this full year, 116.4p in 2025, and 122.6p in 2026. This would give yields respectively on the stock price of 4.3%, 4.6%, and 4.8%.

Even at the current 4% in dividends, £10,000 will make £4,908 in dividends in 10 years. Over 30 years on the same basis, payments will rise to £23,135.

If yields rise to a forecast 4.8% by 2026, £10,000 invested will see £6,145 in dividends after 10 years and £32,086 after 30 years.

This unprecedented increase in dividends over time from even small increases in yield underscores why I prefer firms to increase shareholder rewards through dividends, not buybacks.

Will I buy more shares?

I bought Shell stock a few years ago at a much lower price than it is now. So I’m happy with that position.

If I didn’t have it, I’d buy more today, given its long-term growth prospects. This should increase the price and returns over time.