Shares of Royal Dutch Shell (NYSE: RDS) have produced only meager returns for investors in recent years, but all that may be changing.

That’s thanks to an ambitious growth plan that may boost cash flow by 50% and allow Shell to generate more than $175 billion of cash flow during the next three years. By buying shares now, investors can take advantage of the upcoming cash flow bonanza while collecting a 5% dividend.

At a current price-to-earnings (P/E) ratio of 8, Shell — Europe’s largest oil company and the third largest globally behind Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) — is priced at a nearly 25% discount to its five-year median P/E of 10.5 and 20% below its industry peers. Shell’s price-to-cash flow ratio is only 5, which values the company at 35% less than its competitors.#-ad_banner-#

A few years ago, Shell began investing heavily in infrastructure, natural gas and shale resource plays. More than 30 projects are in development. Together, these represent more than 7 billion barrels of new gas or oil.

Shell has made key acquisitions in major resource plays such as the Eagle Ford Shale in South Texas and the Marcellus Shale. Last September, the company spent $1.9 billion to purchase Permian Basin properties in West Texas from Chesapeake Energy (NYSE: CHK) that more than triple the company’s shale oil production.

In the next five years, Shell anticipates tenfold growth in its shale oil production, to more than 250,000 barrels a day. Unlike deepwater oil and gas, shale resources can be developed quickly, which is great news for oil giants such as Shell in the race to find new reserves.

Shell plans to spend $6 billion on its worldwide shale operations this year. The company has roughly 3 million acres of oil-rich shale formations in North America and is also drilling shale in the Middle East and Russia.

More than any of its rivals, Shell has made big investments in natural gas and liquefied natural gas (LNG). The company has already invested more than $40 billion in LNG production facilities and controls 7% of the world LNG business. Shell plans to more than double its LNG share through development and acquisitions.

LNG is the fastest-growing fuel, with annual demand forecast to double in 10 years to 500 million tons, the equivalent of 4.5 billion barrels of oil. Demand is rising because natural gas is abundant, relatively cheap and burns much cleaner than either coal or oil.

Three months ago, Shell added 7.2 million tons annually to LNG volume by purchasing the LNG business of Spanish company Repsol for $6.7 billion. Last month, Shell scored a coup when it was chosen to partner with the Abu Dhabi National Oil Co. to develop the prolific Bab Field gas reservoirs. The Bab Field, once developed, will produce 500 million to 800 million cubic feet of gas per day. 

Shell’s large natural-gas holdings were a drag on earnings last year when crude oil prices hit record highs, but in March 2012, natural-gas prices plummeted to a 10-year low. Natural gas makes up 54% of the company’s reserves and more than half of annual production.

However, with natural-gas prices finally turning around and hitting multi-month highs, Shell may finally begin reaping the benefits of its investments.

The company’s earnings improved 3% in the first quarter from a year earlier, to $7.5 billion, and Shell also increased its dividend by 5% to an annualized rate of $1.80. Analysts think the company can deliver annual earnings growth of 4% to 6% in the next five years.

Cash flow, a better measure of financial strength, came in at $11.6 billion during this year’s first quarter, up 17 % from the previous quarter. In the past 12 months, Shell has generated more than $49 billion of cash flow, including $13 billion of free cash flow. After spending $10 billion for dividends and share repurchases, the company was left with a cash surplus of $3 billion.

The company’s balance sheet is strong, showing $17.6 billion of cash and debt of $36 billion, which represents only 15% of shareholders’ equity.

After maintaining its dividend at $1.68 a share during the global downturn, Shell increased payments 2.4% last year and 4.7% in the first quarter of this year. The modest 34% payout leaves plenty of room for dividend growth, and Shell also plans to spend $4 billion to $5 billion on share repurchases this year, which will enhance earnings per share and book value. 

Risks to Consider: Royal Dutch behaves like U.S.-traded companies by paying quarterly dividends (most European firms pay semiannually or annually. Shell has both Class A and Class B shares, the only difference being that Class B shares aren’t required to withhold a 15% Dutch tax on dividends. U.S. investors can recover foreign taxes paid on Class A shares through annual tax filings with the IRS. However, there is no such recovery if shares are held in a tax-deferred account, so the Class B shares are a better choice for an IRA.

Action to Take –> All oil and gas companies win as energy prices rise, but none more so than Shell due to its huge exposure to natural gas. In the meantime, investors get paid a generous 5% dividend that looks very secure.

P.S. — The abundance of natural gas in the U.S. could lead to a third industrial revolution. One analyst is predicting a certain stock could rise 1,566%. Another stock has already jumped more than 1,000% and is expected to keep going. To learn more about investing in the natural gas boom, click here.