Derwent London; BATM
Wednesday, 18 March 2009
Our view: Buy
Share price: 1579p (+1p)
The fact that Royal Dutch Shell is increasing its dividend is news in itself. At a time when companies ranging from some of the biggest on the FTSE 100 to the smallest Aim-listed groups are cutting back to preserve cash, a hike in returns for investors will be wholly welcomed.
The Anglo-Dutch exploration, production and refinery group said yesterday as part of its 2009 strategy update that it would pay out $10bn this year, a 5 per cent increase on the amount paid out to investors last year.
The strategy report is the company’s attempt to update the market on operational matters, and with the price of oil in particular being so volatile in the last year, investors should note that Shell says it is loath to change its longer term investment policy.
It will spend an extra $31bn to $32bn on investments this year, to maintain what it says is a market leading portfolio. That marks a change from the last two years when the company has launched fewer new projects to counter the effects of what watchers at Killik Capital argue was “the peak of the cost cycle”.
The strategy report had little impact on the shares yesterday, but existing investors will be quietly pleased. Last week, rival BP said that it too would be paying a dividend, but would not be drawn on how much.
True, while Shell’s investors should be concerned about what the chief executive, Jeroen van der Veer, calls “testing times in the oil and gas industry”, they should note that despite the price of oil falling by about $100 a barrel in the last eight months or so, Shell’s shares have outperformed the rest of the FTSE 100.
Those at Killik argue that the shares are a buy. “The main reason for holding the shares is the yield,” they say. “We’d remind investors that the group declares its dividend in dollars, so a 5 per cent increase in the dollar payout in 2009 would equate to a 26 per cent increase in sterling terms at current exchange rates. With the shares trading on a prospective yield of 7.7 per cent, we remain buyers.” We would argue that investors heed the advice. Buy.
EBOOK TITLE: “SIR HENRI DETERDING AND THE NAZI HISTORY OF ROYAL DUTCH SHELL” – AVAILABLE ON AMAZON
EBOOK TITLE: “JOHN DONOVAN, SHELL’S NIGHTMARE: MY EPIC FEUD WITH THE UNSCRUPULOUS OIL GIANT ROYAL DUTCH SHELL” – AVAILABLE ON AMAZON.
EBOOK TITLE: “TOXIC FACTS ABOUT SHELL REMOVED FROM WIKIPEDIA: HOW SHELL BECAME THE MOST HATED BRAND IN THE WORLD” – AVAILABLE ON AMAZON.
