Investing £20,000 in Shell (LSE: SHEL) shares 4 years in the past would have been a sensible transfer.

In February 2021, the world was nonetheless reeling from the Covid pandemic. Inventory markets had been risky, economies had been buckling and the Shell share price was buying and selling at simply 1,345p. Quick ahead to right this moment, and the inventory price has surged to 2,661p. That’s a formidable 98% rise over the interval.

So how a lot would an investor who put £20,000 into Shell shares again then have right this moment? Let’s crunch the numbers.

At 1,345p per share, they’d have acquired round 1,487 shares (I’m leaving buying and selling prices out). At right this moment’s price of two,661p, these shares would now be value round £39,578. That’s practically double the unique funding.

The compounding energy of dividends

Capital progress’s solely a part of the story. Shell’s continued to reward shareholders with dividends. I’ve totted up every thing it’s paid to UK buyers since 29 March 2021. If my maths’ right, it really works out as £3.47 per share. With 1,487 shares, that quantities to an additional £5,160 in complete money returns.

Including up each the capital appreciation and dividend earnings, the entire worth of the funding right this moment could be round £43,738. That’s a whopping 119% complete return over 4 years.

I’m cherry-picking that efficiency interval. Others gained’t have executed as effectively. The important thing query now could be whether or not Shell can keep its momentum.

The corporate benefitted massively from the power disaster triggered by Russia’s invasion of Ukraine in 2022. Hovering oil and gasoline costs boosted its revenues and earnings. However with power costs having settled, the inventory’s efficiency has slowed. Over the previous 12 months, the shares are up simply 9%.

The worldwide power transition’s a giant problem. Shell’s invested in renewables, however with blended success. 

Simply final week, it wrote down $1bn on its US wind enterprise. CEO Wael Sawan’s made it clear that the corporate’s inexperienced power division should begin to ship significant returns.

At a trailing price-to-earnings (P/E) ratio of seven.6, Shell shares don’t look costly. That’s roughly half the typical FTSE 100 P/E of round 15 instances.

This implies the market’s pricing in danger, presumably on account of uncertainty over the way forward for fossil fuels. As ever, the place power costs go within the brief time period is anyone’s guess. Particularly with the world bracing for a possible commerce conflict.

Can it maintain rewarding shareholders?

On the earnings entrance, the inventory at the moment presents a trailing dividend yield of 4.1%. That’s engaging for buyers searching for passive earnings, though it’s value remembering dividends are by no means assured.

In its This fall outcomes, launched on 30 January, Shell introduced a 4% dividend hike alongside a $3.5bn share buyback (its thirteenth consecutive quarterly buyback of $3bn or extra). The ahead yield’s 4.8%. That’s good, albeit beneath its common 10-year yield of 5.7%.

Nonetheless, earnings fell 16% to $16.1bn throughout 2024, elevating considerations about whether or not these payouts could be sustained. Web debt grew by $3.6bn over the quarter, now standing at $38.8bn. Nonetheless, that’s down from $43.5bn at the beginning of 2024.

Shell faces challenges nevertheless it appears additional down the power transition highway than rival BP. Volatility’s baked in, however I believe it’s value contemplating by buyers with the persistence to resist short-term share price volatility.