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Shell scraps the scrip

The oil major will no longer offer shares in lieu of a cash payout
November 29, 2017

Large companies’ capital markets days tend to be slow-moving, presentation-heavy outings. At its London investor roadshow on 28 November, Royal Dutch Shell (RDSB) sent market pulses racing a little faster than usual when it unveiled plans to abandon its scrip dividend earlier than analysts had forecast.

IC TIP: Buy at 2,423p

From its next quarterly dividend onwards, the oil major will withdraw its offer of a share-based payment and instead distribute its returns to shareholders in cash only. A halt to the steady issuance of billions of dollars’ worth of shares – which arrives with a 20 per cent level of gearing “in sight”– removes a major source of shareholder dilution.     

The shares rose 4 per cent on this news and a revised forecast to organic free cash flow, which should increase 20 per cent to $30bn a year by 2020, at $60 per barrel. Of equal encouragement – particularly for investors focused on the risks that fossil fuel subsidies may one day pose to the sector – Shell said it will reduce the net carbon footprint of its energy products “expressed in grams of CO2 per megajoule consumed” by a fifth by 2035, and by half by 2050.

Panmure Gordon expects adjusted pre-tax profit of $18.2bn and EPS of $1.91 this year, rising to $29.9bn and $2.01 in 2018.