Shell plans to increase its dividend following a stronger-than-expected performance in the third quarter of 2020, six months after cutting it by two-thirds
Shell beat analyst expectations in the third quarter of 2020 (Credit: Photographic Services, Shell International Limited)
Royal Dutch Shell has announced a dividend increase as it seeks to boost investor confidence amid a low-carbon restructuring and coronavirus turmoil.
Just six months ago, the Anglo-Dutch oil major cut its dividend – historically one of the biggest payouts to shareholders among FTSE 100 companies – by two-thirds, reducing the return for the first time since the Second World War.
It said steps taken since then have “significantly strengthened its financial resilience”, allowing it to accelerate strategic plans and provide clarity on cash priorities.
Like many of its industry peers, Shell has suffered a huge drop in its share price this year – down 60% since January – as a result of the financial disruption caused by the pandemic and the longer-term impact of low-carbon energy transitions on fossil fuel businesses.
In September, the company confirmed plans to cut up to 9,000 jobs – around 10% of its workforce – by the end of 2022, as part of efforts to streamline operations as it pivots away from fossil fuels and aims to reach net-zero emissions by 2050.
Shell hopes dividend increase will strengthen its case for investment
Its third-quarter dividend will be increased by 4% to 16.65 cents per share. That compares to 47 cents per share prior to the cut earlier in the year.
Shell’s chief executive Ben van Beurden said: “Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case.
“The strength of our performance gives us the confidence to lay out our strategic direction, resume dividend growth and to provide clarity on the cash allocation framework, with clear parameters to increase shareholder distributions.”
Board chairman Chad Holliday added: “We are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth.”
Shell posted better-than-expected third-quarter financial results, driven by “record earnings” from its marketing business where high-margin premium products and non-fuel sales from convenience outlets performed well.
It reported adjusted earnings of $955m, which is up from $638m in the second quarter of 2020 but still an 80% year-on-year decline. The performance far exceeded analyst expectations of a $146m profit.
Net debt fell to $73bn, compared to $78bn in the previous quarter and $75bn a year ago.
The coronavirus crisis that has dealt consecutive blows to oil companies throughout the year shows little sign of abating, and Shell warned of “significant uncertainty in macroeconomic conditions” going into the fourth quarter, which will have “an expected negative impact on demand for oil, gas and related products”.
Earlier this week, European rival BP – which has also slashed its dividend this year and embarked upon a low-carbon restructuring – posted a narrow third-quarter profit of $86m, following a $6.7bn second-quarter loss.