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Shell, BP Hold Lure of Higher Payouts After Brexit Hurts Pound

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screen-shot-2016-10-06-at-13-11-55By Rakteem Katakey: October 12, 2016

The British pound’s slump to a 30-year low is handing a windfall to U.K.-based shareholders of Royal Dutch Shell Plc and BP Plc.

The currency’s decline means the two oil companies are making higher payouts to U.K. investors when they distribute their dollar dividends in pounds. Shell and BP have pledged to prioritize defending their dividends through oil’s biggest downturn in a generation.

The companies have maintained their payouts for the past two years and shareholders who have stayed invested through crude’s slump are likely to get additional cash in the U.K. currency as the pound remains weak following Britain’s June 23 decision to exit the European Union. The potential for higher cash payouts is driving up the companies’ London-listed shares. U.S. investors get no benefit from the currency’s more than 17 percent slide against the dollar in the period, which makes the pound the worst performer among major currencies.

“In dollar terms the dividend has been flat, but in sterling terms the dividend is up quite a bit,” said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd., which owns shares in both Shell and BP. “It’s a fantastic time to be based in the U.K., being shareholders in these two companies and taking the additional cash.”

Third Quarter

Shell is scheduled to announce it’s third-quarter dividend in dollars on Nov. 1, before setting the pound exchange rate on Dec. 2 and making the payment on Dec. 16, according to its website. BP will announce the same day as Shell, convert to the U.K. currency in early December and pay on the same day as Shell.

The value of Shell’s 47 cents a share second-quarter dividend announced on July 28 has increased by about 8.6 percent from the almost 36 pence it was worth at that time to the equivalent of more than 38 pence. The value of BP’s 10 cents a share payout has also increased more than 8 percent in the period.

Shell is likely to pay about $15 billion in dividends this year, higher than last year’s $12 billion following the purchase of BG Group Plc in February, Chief Financial Officer Simon Henry said in June. BP has paid about $6 billion a year since 2012, according to Liberium Capital Ltd.

Christmas Present

Together with oil’s rise above $50 a barrel, the lure of extra cash has drawn investors to Shell and BP’s London-listed shares, Armstrong said. Shell’s B shares, the most widely traded, have increased 17 percent in London since the Brexit vote compared with a 5 percent gain for the company’s American depositary receipts in New York. BP’s London shares have surged 24 percent compared with a 9 percent gain for the U.S. stock. 

Shares of European rival Total SA have increased 7 percent in Paris during the period. In New York, Exxon Mobil Corp. has dropped 2.2 percent while Chevron Corp. gained 1 percent.

About 41 percent of Shell’s B shares holders are based in Britain, according to data compiled by Bloomberg. BP has about 33 percent of its shareholders in Britain, according to the data.

“The sterling is the reason why dividend hunters paid in the British pound are actively interested in these companies,” said Jason Kenney, an Edinburgh-based analyst at Banco Santander SA. “It will be a Christmas present for U.K. dividend investors if the exchange rate remains the same.”

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