The Anglo-Dutch oil giant, Shell, reported today that they will raise its dividend 4% to 16.65 cents in the third quarter of 2020, as they seek shareholders’ confidence.
The company also noted that the board approves a cash allocation framework, “which, on reducing its net debt to $65 billion, will target total shareholder distributions of 20-30% of cash flow from operations.”
Ben van Beurden, Shell’s chief executive, said: “We are starting a new era of dividend growth. 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.”
After the announcement, Shell’s shares went up 4%, an important upgrade after they plunged into a 25-low record in April.
In that month, the company, amid the demand destruction due to covid-19, slashed the dividend payout 66% to 16 cents. A measure non taken since the end of WWII.
The company also reported cash flow from operations at $10.4 billion in the third quarter. Slightly down from the $12.3 billion from last year’s same period.
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Dividend pay just a part of the full strategy
Shell also added that they would cut the number of oil refineries from 14 sites to six energy and chemical parks as they seek new sources of energy, like natural gas.
According to the Financial Times report, Shell has been enduring a lot of pressure this year: they face the double challenge of the covid-19 crisis and the responsibility to transit to cleaner energy sources.
Shell took dramatic measures to face those challenges: the slash in dividend payments, a 9000-job cut, and a cut in costs. With oil prices stuck at $40 per barrel, the challenges that Shell and many other companies of the sector are unmatched.
Nevertheless, they are undertaking a lift in their dividend payments to ensure shareholders’ confidence.
Shell’s Chair of the Board, Chad Holliday, concluded: “The Board has reviewed Shell’s recent performance and its plans to grow its businesses of the future. We are confident that Shell can sustainably grow its shareholder distributions as well as invest for growth.”
With the announcement of a new chairman for next year, believed by analysts to be Andrew Mackenzie, former chief executive of miner BHP, Shell may succeed in this new path for 2021.