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Investing Specialists

An Overseas Oil Stock for Your Portfolio

Royal Dutch provides an option on oil price increases--and you get paid to wait.


The following alert was sent out Oct. 17 notifying subscribers to the Morningstar InternationalInvestor newsletter that I had just bought shares of  Royal Dutch Shell (RDS.A) for the newsletter's real-money Passport Portfolio. This is just one example of the investment opportunities overseas. For more international picks, try a subscription to InternationalInvestor.

I am pleased to announce I bought 90 shares of Royal Dutch Shell for $48.38044 per share, including commissions, in the Passport Portfolio. This is one of the three super-major oil companies. It also owns the largest retail distribution network. Its huge scale and diversity should enable it to continue to be one of the leading oil companies in the world. After its embarrassing reduction in reserves in 2004, it has increased its focus on obtaining new oil reserves. It has also increased its involvement in renewable energy sources. Few competitors can rival its technology and engineering expertise, project management skills, and capital resources.

The price of oil has been cut in half from its peak, but it is still above where it was one year ago. Although oil might continue to decline, long term it will likely increase again. In July, I wrote that I expected commodities to roll over and have been happy to not own any. However, given the current prices stocks are trading at and the likelihood that oil demand will increase in the long term, I would like to have some exposure. In the meantime, Royal Dutch yields 6.5%, and, unlike most international stocks, it pays its dividend quarterly. The dividend is subject to 15% foreign tax withholding.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.