Royal Dutch Shell: Low valuation, high yield

This stock scores a top rating on a growth and value investment screen.

By TheStockAdvisors Mar 26, 2013 9:54AM

Oil drums Kevin Phillips Digital Vision age fotostockBy John Reese, Validea


Royal Dutch Shell PLC (RDS.A), the Netherlands-based energy giant, is one of the largest companies in the world, with a $213 billion market cap and close to half a trillion dollars in sales over the past 12 months.


Its shares are cheap -- they trade for just 7.8 times trailing 12-month earnings -- and come with a 5.2% dividend yield. Fundamentals like those help it earn strong interest from my James O'Shaughnessy-based growth & value investor model.


O'Shaughnessy's Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. Its market cap of $213,967 million passes this test.


The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for.


The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.40). RDS.A's cash flow per share of $12.90 passes this test.


This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (622 million shares). These are the more well known and highly traded companies. RDS.A, who has 3,145 million shares outstanding, passes this test.


A company's trailing 12 month sales ($467,153 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($20,660 million). RDS.A passes this test.


The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. Royal Dutch Shell, with a dividend yield of 5.17%, is one of the 50 companies that satisfy this last criterion.


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