Yahoo! News: Shell Shock, Yield Winner: “Twelve months have passed since Shell (LSE: SHEL) owned up to incorrectly categorising four billion barrels of oil.” (ShellNews.net) 13 Jan 05

Market Comment

By Maynard Paton

Twelve months have passed since Shell (LSE: SHEL) owned up to incorrectly categorising four billion barrels of oil. The reclassification of 20% of ‘proven’ reserves as ‘probable’ -- essentially meaning not as much oil would be retrieved as quickly as originally thought -- dumbfounded City investors and the shares naturally slumped.

But as fund managers questioned future production rates and joined a witch hunt for the directors responsible, ordinary investors ought to have been rubbing their hands.

On the day of the announcement, this article declared the shares looked ‘good value’ at 372.25p. The reasoning was simple. The oil sector had been a proven performer over the long term, Shell (despite its troubles) remained a major global player and the shares were yielding in excess of 4% -- something rarely seen over the preceding ten years.

One month after the reserves admission, Shell released its full-year results. Net income came in 35% higher at $12.7b while the annual dividend was lifted 3.3% to 15.9p per share -- hardly a company facing financial disaster! Indeed, the shares then tweaked the interest of Fool writer Stephen Bland. For his February 2004 high yield selection within the Fool’s Value Investor newsletter, Stephen highlighted Shell at 363p and its (almost unheard of) 4.6% prospective yield.

With Shell’s shares currently trading around 443p, anybody taking advantage of the Foolish advice would have subsequently recorded a return of between 23% and 27% (including dividends). In a year when the FTSE 100 index (news) reported an 11% gain (including dividends), the suggestion to buy Shell looks quite prescient with hindsight.

So where can you find more solid-but-unloved blue chips? One starting point perhaps is to look at the worst performers over the past year, which currently includes names such as Compass (LSE: CPG), AstraZeneca (LSE: AZN.L - news - msgs) (LSE: AZN) and Rentokil (LSE: RTO.L - news - msgs) Initial (LSE: RTO). A better bet though is to ensure you keep reading the Fool’s daily Lunchtime e-mail and monthly Value Investor newsletter, both of which regularly highlight attractive FTSE constituents.

At the time of writing, the twelve high yield picks selected in the Value Investor newsletter during 2004 had returned 13% including dividends. The Value Investor has an honest reporting policy.

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