Shell restores its all-cash dividend as the oil market makes a comeback

Courtney Goldsmith
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Shell said its outlook for cash flow had improved (Source: Getty)

Royal Dutch Shell has restored its all-cash dividend following years of austerity driven by the sharp downturn in oil prices.

The Anglo-Dutch giant said it would abolish its scrip dividend, a programme through which investors could receive dividends in shares or cash, in the fourth quarter of 2017.

The scheme was put in place in early 2015 after oil prices halved and Shell made a £47bn acquisition of gas producer BG Group.

In a strategy update, chief executive Ben van Beurden reiterated plans to buy back $25bn (£19bn) of shares between 2017 and 2020.

Shell's cash flow outlook was also raised from $25bn to $30bn by 2020, with oil prices of $60 per barrel.

Debt reduction remains a priority, the oil major said. It has almost completed a $30bn divestment programme that started in 2016, and once this programme is complete, Shell aims to continue divestments at an average rate of more than $5bn a year until at least 2020.

Shell's share price rose more than three per cent to 2,434p in morning trading.

BP was the first European oil major to say it would resume share buybacks earlier this month, and Norway's Statoil has also cancelled its scrip dividend.

"Royal Dutch Shell’s strategy update shows an encouraging increase in future cash flows, following their well-timed purchase of BG near the bottom of the oil price cycle, and their efficiency drive," said Simon Gergel, chief investment officer of UK equities at Allianz Global Investors.

"We welcome their decision to stop paying scrip dividends from the fourth quarter, which reflects their improving cash generation profile."

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New carbon footprint plans

Shell also announced a new net carbon footprint ambition today, which will cover emissions produced from its own operations as well as those produced when using Shell's products.

“Shell aims to cut the net carbon footprint of its energy products... by around half by 2050. As an interim step, by 2035, we aim to reduce it by around 20 per cent,” said van Beurden.

“We will do this in step with society’s drive to align with the Paris goals, and we will do it by reducing the net carbon footprint of the full range of Shell emissions, from our operations and from the consumption of our products.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown said the announcement was an early Christmas present to shareholders, but he warned it was not all plain sailing.

"The ambitious targets for a lower carbon footprint from its energy products reflects an increasingly carbon-conscious market, that’s also reflected in the group’s ongoing investment in new energies, which is set to step up from here," Hyett said.

"It’s also worth remembering that Shell’s double helping of motherhood and apple pie is predicated on $60 oil. The outlook for oil has improved, but the black stuff has spent most of the last 3 years below that level.”

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