How to pocket a slice of Shell and BP’s record profits

When soaring energy prices are delivering record profits to the oil giants, many investors will be left with one thought — how do I get a slice?

Last week, Shell reported the highest annual profits in its 115-year history, making £32.2 billion in 2022. Yesterday, 

BP announced it had more than doubled its 2021 profits last year, making a record £23 billion. 

The company said it would hand more money than planned to shareholders, increasing its quarterly dividend payout by 10 per cent.

Shares in energy companies around the world rose 48% in 2022 overall, even as global stock markets plummeted 18% on average

Shares in energy companies around the world rose 48 pc in 2022 overall, even as global stock markets plummeted 18 pc on average.

In fact, new research from asset manager Schroders shows that the five top performing stocks worldwide last year were U.S. energy companies. 

Top of the charts was Occidental Petroleum, with a rise of 119 per cent. 

This was followed by Hess, ExxonMobil, Marathon Petroleum and Schlumberger, with returns of between 81 per cent and 94 per cent.

The big question now is have investors missed the boat — or is there still time to catch the wave of returns on energy stocks?

Profits to keep rolling in

Darius McDermott, managing director of stockbroker Chelsea Financial Services, says there’s still time to make money on energy shares. ‘The easy money may have already been made, but it doesn’t mean investors won’t see positive returns this year,’ he says.

Brent crude oil is currently trading at $82 (£68.44) a barrel. ‘Oil’s long-term trading range is thought to be between about $50 to $80 a barrel,’ McDermott adds.

‘Oil companies can still make a profit if oil falls to the bottom end of this range and there is high demand — so the good times could continue, even if returns are more modest than in 2022.’ One reason investors have made money is the dividends paid by big oil producers.

BP increased its dividend by 8 per cent in the year to last September, while Shell increased payouts by 15 per cent. 

In total, the two energy giants paid investors $11.76 billion (£9.81 billion) in dividends last year.

Someone with £5,000 invested in Shell shares would have received £247 in dividends. With BP, they would have got £270. 

That’s on top of share price growth. Jason Hollands, of wealth management firm Evelyn Partners, says: ‘The drive towards net zero has incentivised energy companies to be disciplined about their spending, which has vastly improved their profitability.’

Cashing in: Last week, Shell reported the highest annual profits in its 115-year history, making £32.2n in 2022

Cashing in: Last week, Shell reported the highest annual profits in its 115-year history, making £32.2n in 2022

Where to put your cash

To share in their profits, you could simply buy BP or Shell. But to spread the risk of your investment, consider a fund that’s heavily invested in energy stocks. Hollands likes the Temple Bar Investment Trust, where £2 in every £10 is invested in energy.

Top ten holdings include BP, Shell and French giant TotalEnergies.

A £10,000 investment made five years ago would have lost money and be worth £8,700 but over the past two years it has fared better, turning £10,000 into almost £12,000.

For a dedicated energy fund, Hollands suggests Guinness Global Energy, which invests in oil and gas stocks, refiners and energy services companies. A £10,000 investment made five years ago would now be worth £14,000.

Stephen Yiu, manager of the Blue Whale Growth Fund, has invested in the energy sector for the first time. 

He is backing energy firm Canadian Natural, which owns oil sands mines in Alberta, Canada, among others. 

He says: ‘Its reserves are predicted to last about 45 years — favourable compared to the average U.S. shale company reserves of around ten years. 

It also has a track record of 23 consecutive years of dividend increases.’ Canadian Natural shares are up 17 per cent over the past year.

Another way to gain exposure to the UK energy sector is through a FTSE 100 tracker, such as the iShares Core FTSE 100 UCITs ETF. This is because energy stocks account for a large part of the FTSE 100 — translating to 13 pc of the iShares fund.

Predictions: Brent crude oil is currently trading at $82 (£68.44) a barrel with oil’s long-term trading range is thought to be between about $50 to $80 a barrel

Predictions: Brent crude oil is currently trading at $82 (£68.44) a barrel with oil’s long-term trading range is thought to be between about $50 to $80 a barrel

Clean energy can pay too

The oil majors are sometimes considered ‘sin stocks’ by investors who only want their money to go towards ‘virtuous’ projects.

But fossil fuel companies such as BP and Shell are at the forefront of the drive for cleaner energy and experts think that if the world is to wean itself off fossil fuels, the likes of BP and Shell will play a key role.

However, one potential threat to investors is the windfall tax applied to profits made from extracting UK oil and gas. 

In his Autumn Statement, Chancellor Jeremy Hunt announced this would increase from 25 per cent to 35 per cent from January 2023, and stay in place until March 2028.

McDermott says: ‘Windfall taxes will hurt a bit at the [profit] margin, but these are global businesses, so this is not a huge concern. It’s unlikely to affect their dividends.’

But what if you’d prefer to stick to specifically clean energy firms?

McDermott tips the VT Gravis Clean Energy Income Fund for backing renewables. 

This fund has NextEra Energy and Greencoat UK Wind, which invests in UK wind farms, in its top ten holdings. It has turned a £10,000 investment into £18,200 over five years.

Hollands highlights The Renew-ables Infrastructure Group, which owns wind farms and solar parks across the UK, Ireland, France, Sweden and Germany. The trust has turned a £10,000 investment into £11,900 over five years.

moneymail@dailymail.co.uk

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