March has been a great month for dividend income. I received dividends from two of my biggest holdings, Royal Dutch Shell (RDSB) and BP. Even though I bought these shares with a chunky yield of about 8% each, I was pleasantly surprised that I had received more dividends than I had anticipated due to the weak pound. As a result of the weakening of the Pound (GBP), I have received a total of £121.73 in dividends this month.
A weaker Pound (£) against the USD ($) is great for my BP and SHELL (RDSB) stock!
Both Shell and BP set their dividends out in dollars ($) each year. This makes sense as their main product, oil, is priced in USD globally. As a UK investor, this means that the amount I receive from these two giants of the oil industry gyrates depending on the Dollar/Pound Exchange Rate. When the Dollar is weak, I get less dividends and when the Dollar is strong like it is at the moment, I get more dividends.
On March 24, BP paid me a quarterly dividend of £37.73 for my ownership stake of the business. The last Dividend payment I received from BP in December was £35.89. Due to the weakening of the pound against the dollar, I have received 5.68% more in income than I would have otherwise expected.
The news is even better when it comes to Shell (RDSB). Shell announced the GBP dividend even after BP did and thus it is paying a better rate due to the further fall in the pound. I was expecting 31.2p a share and expecting to receive £80 for my 256 shares. What I have actually received as a result of the falling pound is 32.78 a share which means I have got £84. That is a 5% increase or 5% pay rise. You won’t get that at no ordinary job and that is why I love dividend investing. This brings my yield on cost for shares in Shell to a whopping 8.56%. If I were to receive this level of dividends from now on, within 12 years I would have receive dividends equal to the amount I originally invested in Shell. This is true return of capital.
On a side note, the BG element of the Shell dividend amounts to £13.77. This is from the 42 shares in Shell I received as a result of the BG – Shell Merger. Taking the all share option seems to have worked well for me so far as the Shell (RDSB) price has appreciated over the past month and I am also getting this chunky dividend shell pays.
How did I get such a high dividend yield?
As you can see, my Shell and BP stocks pay me a ridiculously high dividend. How did I do this? I realised Shell and BP were excellent cash generating companies which had been treated unfairly by the market. The low oil price coupled with the market volatility faced by the overall stock market had unfairly knocked the prices of these two oil giants. Any long term investor could see that it was a great time to buy these companies. By being patient, I was able to buy shares inn these great companies at wonderful prices.
When I bought Shell and BP, I was buying high yielding stocks with low downside due to the bad news already being priced in the stock. The two stocks looked like they were right out of the Donald Yacktman playbook of investing with low expectations as any bad news had already been priced into the stock – the downside was little. Coupled with this, I headed John’s Neff’s advice to treat large dividends as the hors d’evroues that allow you to snack while waiting for the main meal of fair value to arrive.
Today this philosophy is paying dividends – pun intended!