Oil and gas multinational Royal Dutch Shell (RDSB) sprung a positive surprise on investors this morning after hiking its dividend following better than expected quarterly results.
Shares in the Anglo-Dutch giant gained over 2% to 884p as it revealed, in plans laid out alongside its results, that it would increase its dividend by 4% to 16.65 cents in the third quarter.
The oil major insisted it could afford the increased payout as it said its ‘sector-leading’ cash flows and performance had given it the confidence to resume paying higher dividends.
EARNINGS AHEAD OF FORECASTS
In its third quarter results Shell reported adjusted earnings of $955 million, significantly down on the $4.76 billion recorded in the third quarter of 2019 but well ahead of analyst forecasts of $146 million.
Cash flow from operating activities stood at $10.4 billion, compared to $12.2 billion in the same period last year.
Chief executive Ben van Beurden said, ‘We must continue to strengthen the financial resilience of our portfolio as we make the transition to become a net-zero emissions energy business.
‘Our decisive actions taken earlier in the year have solidified our operational and cash delivery. 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.’
‘KEEP PAYOUT IN PERSPECTIVE’
AJ Bell investment director Russ Mould warned that investors should keep the 4% increase in the pay-out in perspective, given that just to get back to the levels seen before its big cut back in April - the first since the Second World War - the dividend would have to be increased by nearly 200%.
But he added that the modest rise and an accompanying blueprint for future growth in the dividend is ‘at least a gesture to shareholders that their need for income won’t be completely forgotten’ as the company looks to continue its transition to a post fossil fuels future.
Mould said, ‘That future still remains distant - the vast majority of the company’s profit and crucially cash flow still comes from oil and natural gas.
‘This has the twin impact of leaving it exposed to volatile prices for those commodities and liable to pressure from shareholders and politicians over its impact on the environment.
‘The company is also looking to reduce its indebtedness. It all adds up to a very tricky juggling act for chief executive Ben van Beurden. Efficiency will have to be the watchword and that lies behind initiatives like reducing its refining portfolio from 14 sites to just six.’
