Royal Dutch Shell is the latest company to cut its dividend payments in a move set to limit the already shrinking pot of investments providing an income to investors.
The oil giant announced today (April 30) it would cut its first quarter dividend from 47 cents per share to 16 cents per share (38p to 13p), knocking 66 per cent off the total investors expected to receive from their Shell holding this quarter.
It is the first major oil company to cut its dividend following the tumbling price of oil due to the coronavirus crisis. It will be a major blow for UK income investors as the company was the biggest dividend payer of the FTSE100 in 2019 and is consistently among the largest UK dividend generators.
Based on the number of shares in the company — just over 8bn according to Statista — investors were in line to receive £3.8bn in dividends for Q1 2020. Today’s move knocks £2.4bn from that total, leaving investors with a £1.3bn dividend payout.
Chair of the company’s board, 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.”
Today marks the first time Shell has reduced its dividend since the 1940s.
Global oil markets have been upended over the past few weeks as demand continues to dry up amid the coronavirus crisis, stoking fears over providers’ capacity to store supply.
Last week the price of West Texas Intermediate — the US benchmark — turned negative for the first time in history. At one point during trading on April 20, desperate producers were paying buyers $40 (£32) a barrel to take their oil.
Shell is the latest in a string of major companies to scrap or reduce their dividend payments amid the coronavirus crisis, leaving income investors more than £20bn worse off since the start of this year.
Last month banks — including HSBC and Lloyds — cancelled their dividends for the rest of the year and insurers, such as Aviva and Direct Line, quickly followed suit. UK blue chips such as Taylor Wimpey and ITV have done the same.
St James’s Place and Sainsbury's also cut their dividends this morning, while JD Wetherspoon reduced its payout yesterday.
Richard Hunter, head of markets at Interactive Investor, said: “This will, of course, be a blow to income-seeking investors and existing shareholders, but can be seen as a positive on two levels.
“Firstly, the move is financially prudent — and understandable given a 46 per cent drop in earnings — while at the same time the dividend is now at a level which the company believes to be sustainable in the future.
“Secondly, even at the lower revised figure, the implied dividend yield is still likely to exceed the FTSE100 average due to dividend cuts elsewhere.”
imogen.tew@ft.com
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