News of increased shareholder returns is greatly welcomed, if not a total surprise given Shell’s recent trading update.
Shell hikes dividend
A strengthened balance sheet and improved economic outlook underpin management’s confidence in launching a $2 billion share buyback programme and hiking the dividend by 38%. That now leaves the quarterly dividend payment at 24 US cents share, up from 17.35 cents in the prior first quarter, although still down from the 47 cents paid prior to the onset of the pandemic. A target to increase the dividend by 4% per year is being retained.
Higher oil and gas prices have helped adjusted profit rise to $5.53 billion, up from a pandemic-hit $638 million this time last year and surpassing analyst expectations of nearer to $5.2 billion. Net debt of $65.7 billion compares to $71.3 billion at the end of the first quarter 2021.
Oil product sales volumes of 4,552 thousand barrels per day for the quarter are up 9% on the 4,164 thousand b/d figure achieved in the first quarter, although still comfortably below the 6,500 thousand barrels per day achieved back in the pre-pandemic second quarter of 2019.
In all, a dire outlook at the start of the pandemic forced Shell to reset its finances, with around $20 billion removed from its outgoings, including last year’s first cut of the dividend since the Second World War. Asset sales and a refocusing towards low-carbon power arenas have further set the tone of the company’s transition.
But a 150% plus rise in the oil price since pandemic lows in March 2020 has boosted cash flows and allowed it to reduce net debt to its former target of $65 billion. As such, and as previously flagged, an increase in shareholder returns is now being made, with the increase in the more permanent dividend payment seen by management as an indicator of its outlook confidence. For now, and with analysts estimating a fair value price of over £17, market consensus opinion remains highly favourable in tone, pointing towards a ‘strong buy’.
More from Keith Bowman: read more articles directly on the interactive investor website.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.