Following the collapse in the demand for oil and the subsequent nosedive in prices, yesterday the oil giant Royal Dutch Shell cut its dividend for the first time since World War II. The dividend cut, whilst not wholly unexpected, did take the market by surprise due to its severity. The board decided that the oil giant's first-quarter dividend would be USD0.16 a share, down from USD0.47 a share at the end of 2019, a 66% reduction. Chair of the board of Royal Dutch Shell, Chad Holliday, said in a statement ‘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’ . According to Bloomberg, the cut in dividends plus savings elsewhere will help the company add USD24bn to its balance sheet.
Slashing Shell's once-untouchable dividend is a substantial u-turn for Ben van Beurden, Shell’s Chief Executive Officer. Just 3 short months ago he said that Shell’s generous dividend was a key lure for shareholders and that it would not be cut. ‘I think lowering the dividend is not a good lever to pull if you want to be a world-class investment case, so we’re not going to do that’ he said. Of course, taking away the very substantial dividend means that investors will find it harder to justify investing in an industry that is at odds with the global climate change movement.
As well as cutting its dividend, Shell announced that it would not continue with the next tranche of its share buyback program. Since inception, the oil behemoth has said it had bought back almost USD16bn in shares for cancellation. Shell followed Norway’s Equinor, which last week became the first oil major to cut its dividend, and many thought BP would follow suit, who reported on Tuesday. However, BP maintained its dividend. Exxon Mobil has also announced it would freeze its dividend for the first time in 13 years.