Shell shells out a little more to investors as it restores its dividend

Oil giant Royal Dutch Shell has partially restored its dividend. Income investors will be pleased, but has the group got its timing wrong? Matthew Partridge reports

Shell oil worker
Shell: reversing course on slashing dividends
(Image credit: © Shell International)

In April Shell slashed its dividend for the first time since World War II. Now, however, even though third-quarter profits were down by 80% year-on-year, it has decided to reverse course to some extent, say Simon Foy and Rachel Millard in The Daily Telegraph. Shell has raised its quarterly dividend, although it is still two-thirds lower than its pre-crisis level. The group has justified the move by arguing that the “lower operating expenses, well write-offs, depreciation and strong marketing margins” mean that it now has enough cash flow to “expand while also raising shareholder payouts”.

The decision to restore the dividend partially suggests that Shell’s management is aware that the huge cut in the spring, in order to enable “significant investment” in clean-energy resources, may have “upset existing shareholders”, says Rochelle Toplensky in The Wall Street Journal. With the company “nowhere near far enough down the path of energy transition” to attract enough environmental investors to compensate for the lost income investors, it has found itself stuck between two stools. It’s no wonder that Shell’s share price is down by 60% this year, “underperforming European oil and gas peers, which have fallen 46%”.

Will the stock bounce?

Shell may be hoping that a slight increase to its dividend will help it “woo investors and reverse the downward slide in its share price”, which is now “languishing at 25-year lows”, says Louise Lucas in the Financial Times. However, such a “short-term” strategy is likely to prove “short-sighted”, especially given the “far from conducive backdrop”, with oil prices “skittering” and the economic toil of coronavirus “adding further pressure”.

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Instead of returning more cash to shareholders, it should be using the money to speed up its attempts to reshape itself as a “climate-friendly carbon-neutral company”. Shell is not alone in this dilemma, say Laura Hurst and Javier Blas on Bloomberg. Every major oil company is walking a “treacherous path”, torn between shareholder demands for “generous and reliable dividends”, and the longer-term need “to shift into renewable energy”. To make matters worse, there is “scant evidence” that clean energy can generate “comparable returns to the traditional oil and gas business”. BP is in a similar bind.

Sensible or not, Shell’s dividend raise has been welcomed by “cash-starved investors”, says Simon Freeman in the Evening Standard. The share price jumped by 5% on the news. Shell’s decision to raise its dividend is the latest sign that the rate of cancelled and cut dividends has been “gradually arrested” over the past few months. Year-to-date total payments have reached £36bn across the FTSE 350, up from £33.5bn in July – though still much less than the expected annual average of around £70bn.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri