Oil Stocks Unstable, Royal Dutch Shell Cuts Dividends for First Time Since World War II

UTC by Bhushan Akolkar · 3 min read
Oil Stocks Unstable, Royal Dutch Shell Cuts Dividends for First Time Since World War II
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In an unprecedented move, Shell has cut down the interim dividend for its shareholders by 66% from $0.47 last year to now at $0.16. The massive crash in oil demand due to COVID-19 has been responsible for this move as per the oil giant.

On Thursday, oil giant Royal Dutch Shell Plc (AMS: RDSA) announced cutting down shareholders’ dividends in a historic decision. The massive crash in the oil prices earlier this month has put huge pressure on oil companies and Shell is no different. RDSA stock is 7.93 % down at 15.91 EUR.

However, this is an unprecedented decision since Shell will be cutting the dividends for the first time since World War II. As per the official announcement, Shell will be offering its investors an interim dividend of $0.16 for Q1 2020. This is a 66% eduction from the Q1 2019 dividend of $0.47.

In the announcement, Royal Dutch Shell is upfront and clear with its investors that the impact of COVID-19 is the reason behind this decision. Besides, it also cautions that the duration of this impact is unclear and weaker conditions can persist even beyond 2020.

It further added that the board has taken this decision to cut down the dividend financial resilience at these uncertain times. With COVID-19, governments across the globe have announced lockdown in several major cities across the globe. Besides, global travel coming to an absolute halt, the demand for oi has drastically fallen.

Earlier this month, oil prices in the U.S. markets turned negative as their storage capacities got full. Well, this forced oil producers to sell their price on the top of paying someone who picks it up from their production facilities. Speaking on this matter, Chad Holliday, chair of the board of Royal Dutch Shell, said:

“Shareholder returns are a fundamental part of Shell’s financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent”.

Most Challenging Times for the Oil Market, Not Only Shell Cuts Dividends

Needless to say that the COVID-19 situation has brought unprecedented misery over the oil markets. The global demand for oil has hit a multi-year low. Shell CEO Ben van Beurden said that the first three months of 2020 have been “extremely challenging” for the oil markets.

“Given the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell,” he added.

For the first quarter of 2020, the net income attributable to the shareholders has dropped at $2.9 billion. This is a 46% drop from the income of $5.3 billion assigned during the first quarter of 2019. The situation is similar all across the globe.

Norway’s Equinor ASA (NYSE: EQNR) has also announced to cut down dividends during this earnings season. Investors are now watching other U.S. oil giants like Chevron Corporation (NYSE: CVX) and Exxon Mobil Corporation (NYSE: XOM) that will release their results on Friday. Their stocks in the pre-market are 0.67% and 0.76% up respectively.

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