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Shell in better shape to fund distribution increase

Investors Chronicle

Shell in better shape to fund distribution increase

The Anglo-Dutch group has reduced net debt markedly from pre-pandemic levels
October 19, 2021
Extracts

Royal Dutch Shell (RDSB) used to be the world’s greatest source of dividend income, but that came to an end last year when oil prices tanked. A production spat between Saudi Arabia and Russia, exacerbated by an unprecedented slump in industrial demand, sent forward contracts into negative territory at one point. Share buybacks were promptly put on ice and the group’s quarterly distributions were pegged back for the first time in living memory.

All this was doubly troubling given the group’s previous willingness to fund its payouts through debt, but the global reaction to the pandemic put paid to Shell’s largesse. Events have moved on from April 2020 and it could be that the ongoing energy crisis could boost dividends, even as it poses a threat to near-term economic growth.

It’s ironic that the energy problems besetting the UK and elsewhere are intensifying in the lead-up to the latest UN Climate Conference (COP26) in Glasgow.

The conference comes as doubts intensify over the pace of Europe’s planned green energy transition. There is certainly increased noise over the potential economic damage that the race to ‘net-zero’ could entail. Shell is in the cross-hairs on the environmental front. It is appealing a ruling by a Dutch court that the group must reduce its CO2 emissions by 45 per cent (net) by the end of 2030 compared to its emissions in 2019, but even if the ruling is upheld, the jurisdiction of the court is open to question. More importantly, shareholders need to assess the likely impact of any pledges from COP26 on future cash flows.

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