The Fear Factor and Royal Dutch Shell

NEW YORK (TheStreet) -- There are two emotions that affect all investors and traders -- greed and fear.

Which of the two do you think is the most powerfully influential when it comes to our investment decisions?

If you answered fear, you are absolutely correct. Sometimes that fear is rational but most of the time it isn't.

Recently, I've been reading a fascinating book titled "The Fear Project" authored by Jaimal Yogis.

The book's official synopsis speaks to everyone who has ever invested:
Who among us has not been paralyzed by fear? In "The Fear Project," award-winning journalist and surfer Jaimal Yogis sets out to better understand fear, why does it so often dominate our lives, what makes it tick, and is there even a way to use it to our advantage?

Fear is also what makes us tick.

Recently, one of my readers wrote about wanting to buy shares of Royal Dutch Shell ( RDS.A) but "I'm afraid it's overpriced and it scares me that they're not an American company."

My response was brief and to the point: Don't let fear dictate your investment decisions. Do your due diligence and be looking for good information about the company so you can invest with confidence.

As Jaimal's book reminds us, fear can motivate us to be careful and that we can all "...learn how to move through fear and unlock a sense of renewed possibility and a more rewarding life."

The rewards of owning RDS begins with its better-than-average dividend. At $71.45-a-share (class A) the current $2.92 dividend gives an investor a yield to price of 4.09%. When you look at the yield on a 10-year U.S. Treasury bond, which reached 1.95% on Friday, the Shell dividend looks quite compelling.

The reader was concerned about the price of RDS. Let's take a look at a one-year chart of the stock price and the company's cash and cash equivalents. When we do we can see why this global powerhouse has seen its share price continue to gradually move higher from its June 1, 2012, lows.

RDSA Chart RDSA data by YCharts

The generous dividend payout represents a payout ratio to the company's earnings of only 34%. RDS has over $470 billion in revenue and, as of the most recent quarter, had total cash of almost $19 billion. It has assets in 44 countries and it is keeping up with the trends and demands of the world's energy needs.

Royal Dutch Shell is one of the five biggest producers of oil in the world, but it's becoming more focused on natural gas. The plan is to convert the natural gas into clean-burning diesel to sell to countries that want a reliable, affordable and more environmentally-friendly form of energy.

Ironically, on Friday Royal Dutch Shell said it signed a 50-year profit-sharing deal with the government of Ukraine to explore and drill for natural gas in shale rock formations in the east of the country using the process widely known as fracking, according to an Associated Press story.

The report adds: "Ukraine's Energy Minister Eduard Stavitsky said investment in the project may reach $10 billion. Shell spokeswoman Julia Dudley Friday sent a joint statement issued by Shell and Ukraine's state-owned Nadra Yuzivska LLC stating each will have a 50% interest."

If investors are letting fear of buying the shares of RDS at current levels stop them, that could be overcome by placing a reasonable stealth trailing stop alert below the price paid, thus having an exit strategy that will limit the amount of downside risk.

Based on Shell's last earnings figures, the stock is selling with a PE ratio slightly above 8 and a trailing-twelve-month price-to-sales (P/S) ratio of only 0.48. The company will announce its latest quarterly earnings numbers on Thursday.

The report will be for the fiscal quarter that ended in December. According to Zacks Investment Research, based on just one analyst's estimate, the EPS forecast for the quarter is $2. The reported EPS for the same quarter last year was $1.55, so this would represent a 29% EPS increase. That doesn't sound like anything to be fearful about.

If new investors want to be cautious, consider buying some shares before the next earnings announcement. Then, add to the position after the company confesses and gives guidance for the year ahead. This is an example of being prudent and not fearful.

In conclusion: I've learned that in the past four quarters RDS disappointed on EPS for two of those quarters. Looking at that same reality from a positive perspective, it surprised on the upside for two of those quarters.

Like most opportunities in life, the glass -- or in this case the Shel" -- is either half-full or half-empty.

At the time of publication the author had a position in RDS.A.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Make smarter trading decisions and provide investment ideas that could help make you richer. Bryan Ashenberg does the dirty work so you don't have to!

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