On 30 April 2020, Royal Dutch Shell (RDSB) sent a shudder through the financial world, when it cut its dividend pay-rate for the first time in decades. Some pundits had previously cast doubt on the ability of the oil major to maintain its distributions, then worth 47¢ a quarter. And maybe the writing was on the wall anyway, especially after it stopped share buybacks a month earlier, two-thirds of the way through the $25bn (£18bn) programme.
One of the key characteristics of the oil majors is their ability to throw off cash when underlying energy prices are moving in their favour. Naturally, the reverse dynamic also applies due to their capital-intensive nature. But Shell had regularly taken the crown as the corporate world’s biggest dividend payer, seemingly regardless of price swings. That’s because it was usually prepared to effectively borrow money to fund distributions.