Oil Giant Shell Clams Up On Dividends

Oil Giant Shell Clams Up On Dividends

almost 4 years ago2 mins

Mentioned in story

Oil major Shell cut its dividend for the first time since 1945 on Thursday – just as a report from Goldman Sachs landed suggesting “variable” payouts could become part of the new normal for companies. So has the tide turned for income-focused investors? 🎣

What does this mean?

Shell and rival BP were already the UK stock market’s top dividend payers, but with big British banks nixing their own profit-sharing recently, the two oil firms represented 30% of investors’ total dividend expectations for 2020.

That’s now somewhat lower. While BP and America’s ConocoPhillips kept their dividends steady this week, Shell on Thursday took existing cost-cutting initiatives one step further – slashing its payout by two thirds as it announced quarterly earnings that laid bare the impact of a tumbling oil price.

Shell shares fell 11% on Thursday: its $16bn dividend was a key draw (Source: Markets Insider)
Shell shares fell 11% on Thursday: its $16bn dividend was a key draw (Source: Markets Insider)

The company says this is a “fundamental shift” rather than a short-term measure – and Goldman Sachs appears to agree. In a report last week, it posited that many firms – particularly those in the oil industry – may in future offer explicitly “variable” dividends that better track performance throughout a business cycle, potentially creating more financial flexibility and resilience than fixed payouts 💪

Why should I care?

Goldman’s thoughts and Shell’s actions fly in the face of a traditional taboo against dividend cuts. The popular “income investing” strategy is predicated upon the promise of stocks paying out regular dividends, rather than their uncertain on-paper price growth.

But with so many firms cutting dividends in response to coronavirus – and BP now looking likelier to follow suit next quarter – investors, like energy companies, may be forced to adapt. And a focus on growth may be no bad thing: according to investment manager Invesco, US recession “bear markets” have historically risen 57% on average three years on from initial lows – regardless of whether stock prices fall further in the interim.

Article Image

Goldman, meanwhile, thinks that a variable-dividend approach could be good for companies’ share prices, reducing the stigma of dividend cuts and replacing expensive stock buybacks 😋

Check out our Pack on Investment Stylesfor more on different approaches you can use to find stocks that fit your strategy.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG