23 reasons to buy this FTSE 100 stock?

much FTSE 100 stocks do not react well to rising oil prices. Recent history shows that higher energy costs lead to rising inflation, which is a brake on the global economy.

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC), plus 10 other oil-rich countries, are collectively known as OPEC+. These countries account for 40% of global oil production. They also have 80% of the world’s proven oil reserves.

The power of OPEC and OPEC+ is therefore considerable. And it is unlikely to diminish. According to the International Energy Agency, peak demand for oil is not expected until 2035.

OPEC+ is using its power to keep oil prices as high as possible without reducing demand.

This week, cartel members voluntarily agreed to cut production by 1 million barrels a day – equivalent to about 1% of global demand.

Unsurprisingly, oil prices rose 6% on the news. It still remains below the last peak. Benchmark Brent crude is currently trading at $82, compared to $130 in June last year.

But shell (LSE:SHEL) was one of the FTSE 100 stocks to react positively to this week’s surprise decision by OPEC+. Shares of the energy giant gained 4% after the announcement.

Not yet convinced

However, while OPEC+ clearly aims to keep oil prices higher, I am not particularly interested in buying shares in Shell. Here are my three reasons.

First, gas prices are down. And Shell sells a lot of liquefied natural gas (LNG) and related products.

Gas prices are likely to remain low for some time because, unlike oil, they are more difficult to manipulate. Russia is trying to limit the flow to Europe before the last winter. But through a combination of luck (milder weather) and prudent demand management, gas prices did not rise as much as Russia had hoped.

Prices in Europe are now 80% lower than in August 2022. In the US, gas is trading in line with historical norms.

The dreaded buybacks

Second, I don’t like the way Shell rewards its shareholders.

In cash terms, the current dividend is 45% lower than in 2019.

However, despite generating more cash than ever, the company decided to spend 2.5 times more on buying back its own shares ($19bn) than on dividends ($7.6bn).

year	Cash flow from operations ($bn)	Dividends per share ($)
2018	53.1	1.88
2019	42.2	1.88
2020	34.1	0.65
2021	45.1	0.89
2022	68.4	1.04

The biggest beneficiaries of this policy are management team members whose bonuses are based on earnings per share. As a shareholder, I prefer cash in my hands.

Not cheap

Finally, the company’s share price is only 13% lower than in May 2018, when the dividend was $1.88 per share.

In my opinion, the current outlook for energy prices does not justify stocks nearing five-year highs.

Although the price-to-earnings ratio (P/E) of the company is reasonable – now it is just below eight – I am aware that it is based on record earnings last year.

Take care of number one

In general with OPEC members, I will act in my own interest.

Like me, the oil cartels are looking for”fair return on capital for those who invest in the petroleum industry“. With a dividend yield below the FTSE 100 average, I wouldn’t get it with Shell. So I will not invest now.