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

When rising energy prices bring 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 profit in its 115-year history, generating £32.2 billion in 2022. Yesterday,

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

The company said it would hand over more cash to shareholders than planned, increasing its quarterly dividend payout by 10 percent.

Shares in energy companies around the world rose by a total of 48 pc in 2022, while global stock markets increased by an average of 18 pc.

In fact, new research from asset manager Schroders shows that the top five best-performing stocks globally last year were US energy companies.

Topping the charts was Occidental Petroleum, up 119 percent.

Hess, ExxonMobil, Marathon Petroleum and Schlumberger followed, with returns between 81 and 94 percent.

The big question now is whether investors have missed the boat – or is there still time to catch the wave of energy stock returns?

Profits keep rolling in

Darius McDermott, managing director of stockbroker Chelsea Financial Services, says there is still time to make money in energy stocks. “The easy money may have already been earned, but that doesn’t mean investors won’t see positive returns this year,” he says.

Brent crude is currently trading at $82 (£68.44) a barrel. “The long-term trading range of oil is estimated to be between about $50 and $80 a barrel,” adds McDermott.

“Oil companies can still make a profit if oil falls to the lower end of this range and demand is strong – so the good times may continue even if returns are more modest than in 2022.

” One of the reasons investors have made money is the dividends paid by major oil producers.

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

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

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

This is in addition to the growth in the share price. Jason Hollands, of asset management firm Evelyn Partners, says: “The drive towards net zero has driven energy companies to be disciplined with their spending, which has vastly improved their profitability.”

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

Where to leave your money

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

The top ten include BP, Shell and French giant TotalEnergies.

A £10,000 investment made five years ago would have lost money and was worth £8,700, but things have improved over the last two years, going from £10,000 to almost £12,000.

For a special energy fund, Hollands proposes Guinness Global Energy, which invests in oil and gas reserves, refineries and energy service companies. An investment of £10,000 made five years ago would now be worth £14,000.

Stephen Yiu, manager of the Blue Whale Growth Fund, has made his first investment in the energy sector.

He supports energy company Canadian Natural, which owns oil sands mines in Alberta, Canada, among other things.

He says, “The reserves are predicted to last about 45 years – compared favorably with the average U.S. shale company reserves of about a decade.

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

Another way to gain exposure to the UK energy sector is through an FTSE 100 tracker, such as the iShares Core FTSE 100 UCIT’s ETF. This is because energy stocks make up a large portion of the FTSE 100 – representing 13 pc. of the iShares fund.

Predictions: Brent crude is currently trading at $82 (£68.44) per barrel and the long-term trading range for oil is estimated to be between about $50 and $80 per barrel

Clean energy can also pay off

The oil companies are sometimes considered “sin stocks” by investors who only want their money to go to “virtuous” projects.

But fossil fuel companies such as BP and Shell are at the forefront of the push for cleaner energy, and experts believe that if the world is to move away from fossil fuels, BP and Shell will play a key role.

However, a potential threat to investors is the windfall tax applied to profits made from the extraction of UK oil and gas.

In his fall statement, Chancellor Jeremy Hunt announced that this would increase from 25 percent to 35 percent from January 2023 and remain in place until March 2028.

McDermott says, “Windfall taxes are going to hurt a little bit at the [profit] margin, but these are global businesses, so this isn’t a major concern. It’s unlikely to affect their dividends.”

But what if you prefer to stick with specific clean energy companies?

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

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

Dutch highlights The Renewables Infrastructure Group, owner of wind farms and solar farms in the United Kingdom, Ireland, France, Sweden and Germany. The trust turned an investment of £10,000 into £11,900 over five years.

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