Blow to pension savers as Shell cuts dividend for first time since 1945
A decades-long streak was brought to an end by the coronavirus on Thursday as oil giant Shell slashed its dividend for the first time since the end of the Second World War.
Investors will only be paid 16 US cents per share of Royal Dutch Shell they own, compared to 47 cents in the same period last year.
Shell boss Ben van Beurden said that it was “prudent” to cut the dividend as uncertainty wrecks the global economy.
Shell took the decision after the “unprecedented” pace and scale of the impact of coronavirus, which has seen US oil prices collapse to levels never seen before.
It marks a major shock for investors, who were used to Shell as one of the world’s most reliable dividend payers.
Unlike rival BP, which was forced to slash dividends after the Gulf of Mexico oil spill in 2010, Shell had not cut its payouts since 1945.
BP now has a longer winning streak than Shell after increasing its dividend earlier this week. However BP boss Bernard Looney did not rule out cuts at a later date.
“There was a great deal of speculation about what the energy company would do leading up to these results and the market was braced for bad news,” said David Barclay, senior investment manager at Brewin Dolphin.
But despite knowing the extent of the oil crisis, investors still punished Shell’s decision on Thursday morning, sending its shares down more than 8% just after 9am.
Kit Atkinson, at Link Group, said: “Shell has administered a bitter pill to investors. A two-thirds cut in its dividend (its first since the Second World War) is not surgical precision, it’s amputation, and is more evidence of the appalling damage the pandemic is doing to the world economy.”
However, despite the hit for many pension funds, who have long favoured Shell for its strong dividend policies, other numbers show a somewhat rosier picture.
With current cost of supply (CCS) earnings at 2.86 billion US dollars (£2.3 billion) during the first quarter, Shell actually beat analyst expectations of 2.25 billion dollars (£1.8 billion).
Shell chairman Chad Holliday said: “Shareholder returns are a fundamental part of Shell’s financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the board believes that maintaining the current level of shareholder distributions is not prudent.”
Oil prices have crashed in the first four months of 2020, with Brent crude dropping to a more than 20-year low – below 19 dollars per barrel – earlier this month.
Brent was at around 64 dollars at the beginning of January.
There have been several reasons for the fall, including a fall-out between Saudi Arabia and Russia.
However, even after the oil-producing giants made up, the price continued to drop as there was simply far more oil in the market than a faltering economy wanted.
Dr Jonathan Marshall, at the Energy and Climate Intelligence Unit, said the dividend cut may cause pension funds to question the wisdom of their fossil fuel investments.
“Glimpses of life after coronavirus do not look good for big oil; airline rescue packages with emissions limits unattainable without moving away from fossil fuels, forecasts of falling car use and the relentless rise of renewables are among many factors that are likely to accelerate the move towards more climate-friendly sources of energy,” he said.