Market Overview

Shell Resumes Full-Cash Dividend Payment On Oil Revival


Shares of European oil giant Royal Dutch Shell plc RDS.A rose 3.36% yesterday to eventually close the day at $63.93 after the company announced plans to resume full-cash dividend payouts and share repurchase program.

Earlier this month, Bp plc BP commenced a share buyback program, becoming the first European supermajor to do so since 2014. TOTAL S.A. TOT is set to do away with the discount it gives on the scrip option in 2018 following the strongest quarterly earnings in the last two years, pointing to brighter prospects and improving cash flow generation. Statoil ASA STO also announced to restart paying full-cash dividends from the next quarter, putting an end to its two-year scrip program. These developments signal the resurgence of the industry from the three-year period slump.

Hit by the industry downturn and weak financials owing to the $50-billion acquisition of BG Group, Shell began to pay dividend in the form of shares in 2015 to address cash flow woes. However, the supermajor is finally aborting the two-and-a-half year long scrip dividend program as cost-containment efforts and divestment strategies have paid off. The company's solid third-quarter results also underscore the fact that it has successfully adapted itself to thrive at $50 barrel crude.

On Management Day, which was observed yesterday, CEO of Shell — Ben van Beurden —announced the resumption of cash dividends from the fourth quarter of 2017. Beurden also announced plans to buy back shares of at least $25 billion by the end of 2020. With the buyback, Shell will be able to overcome the dilution problem under its scrip dividend plan that entitles investors to choose stocks as payout instead of cash.

Driven by synergies from its $50-billion BG Group acquisition last year and improving energy landscape, Shell has also raised its guidance for free cash flow which has remained consistently strong in the last five quarters. The company now expects to generate $25-$30 billion by 2020 at Brent crude price of $60 a barrel. With already closing $23 billion worth sales, the company is on track to achieve its $30 billion divestment target by 2018. Further, it announced asset disposals worth $2 billion and additional $5-billion divestment deals in advanced talks over and above the $23 billion completed.

Reaffirming its priorities to slash costs and cut debts, Shell, which ended the third quarter with debt to capital ratio of 25.4%, now aims to reduce the leverage to 20% on the back of operational efficiency and divestment spree.

Buoyed by its leaner business model, Shell plans to double its investment to $2 billion a year in its New Energies division as it intends to sharpen its focus on cleaner and renewable energy sources. Finally, to help achieve the goals of the Paris Climate Change Agreement the company plans to slash its total carbon emissions by 50% and 20% by 2050 and 2035, respectively.

Shell presently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Royal Dutch Shell PLC Price


Royal Dutch Shell PLC Price | Royal Dutch Shell PLC Quote


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