This is why Royal Dutch Shell shares are rising fast

Strong results and a big dividend make Shell one to own. Our head of markets drills down into the detail. 

The bar is always set high for Royal Dutch Shell (LSE:RDSB) and, on the whole, the company delivers. In these fourth-quarter results, the ongoing benefits of a multi-year streamlining operation are crystal clear.

Of course, the generally higher oil price over the year gave a boost to the numbers. Equally, the more recent weakness makes for a tougher environment, but Shell has been there before. 

Part of the streamlining has been a disposal of non-core assets, which has resulted in divestments of $30 billion in this year alone. The company has admitted this this will inevitably lead to lower production in the near future, but the slack can be picked up in any number of places within the behemoth's sprawling operation.

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Elsewhere, the key metrics shine across the piece. Current cost of supply earnings rose 36%, free cashflow was up 43%, earnings per share added 34% and the overall return on capital exceeded 9%. 

This prodigious cash generation enabled the maintenance of the dividend, where the yield sits at an extremely attractive 6.5%, the continuing roll out of the previously announced $25 billion share buyback programme, and the reduction of some debt.

Source: TradingView (*) Past performance is not a guide to future performance

Within the numbers, negatives are few and far between. The company will have a firm eye on operating expenses, which rose by 4%, whilst the company's divestments will put extra pressure on the remaining units.

Any further weakness in the oil price will need to be managed carefully and, longer term, capital expenditure will be a continuing drain as the company looks to explore alternative energies as the power landscape changes.

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The positive reaction to the results is well deserved. It makes some amends for a share price which has drifted 8% over the last year, in line with the performance of the wider FTSE 100 index, and which has slipped 6% in the last three months alone. 

Shell has historically been seen as a core portfolio constituent and numbers such as these serve to perpetuate that belief. As such, the current market consensus of the shares as a 'buy' will almost certainly hold firm.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.