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Why Shell Canceled Its Scrip Dividend Program

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Shell canceled scrip dividend

Royal Dutch Shell (RDS.A) recently declared that it has canceled its scrip dividend program, which entitled shareholders to receive the dividend in cash or shares. The company’s 4Q17 dividend, which will be announced on February 1, 2018, will be paid in cash dividends.

However, the dividend declared for 3Q17, which is scheduled to be paid on December 20, 2017, will have the scrip election option. We’ll look at this topic in more detail in the next part.

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Why did Shell cancel its scrip dividends?

Since 2014, Shell (RDS.A) has been taking stringent measures to strengthen its financial position. The result of these measures is now visible in its latest cashflow and debt status.

Although Shell was reeling under its cash flow shortfall in 2016, it has achieved a cash flow surplus in 9M17. Also, the company’s debt level has declined consistently in the past four quarters. We’ll discuss its cash flow and debt in detail later in this series.

Growth

Shell (RDS.A) plans to generate around $25.0 billion–$30.0 billion of organic free cash flows per year by 2020, assuming an oil price of $60.00 per barrel. The company’s growth plan would be led by a restructured upstream portfolio, a profit-maximizing downstream portfolio, and a consistent focus on achieving targeted synergies from the BG Group acquisition.

With its improving financials, Shell decided to cancel its scrip dividend. It plans to buy back ~$25.0 billion in shares in 2017–2020, subject to debt reduction and oil price recovery. The aim is to offset the earnings per share (or EPS) dilution that resulted from its scrip dividend program and the BG Group acquisition.

While targeting higher shareholder returns, Shell plans to focus on capex, divestments, cost reduction, and debt reduction to maintain its financial strength.

Jessica Uhl, Shell’s CFO, noted during the company’s November Management Day, “ The scrip was intended as a short-term measure. With our strong performance and delivery against our commitments, we are entering the next phase in delivering the world class investment case.”

Uhl added, “We will also balance buyback levels with meeting our ambition to achieve AA equivalent credit metrics and funding growth.”

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Peers’ dividends

Shell’s peer BP (BP) provides a scrip election option for the payment of interim dividends. However, ExxonMobil (XOM) and Chevron (CVX) pay interim dividends in cash and provide dividend reinvestment options to their shareholders.

Series outline

In the next few articles, we’ll look at Shell’s (RDS.A) scrip dividend withdrawal, its dividend estimate for 1Q18, and its latest cash flow position. We’ll also look at the analyst ratings for Shell stock and its debt position.

We’ll review Shell’s market performance beginning with stock performance, moving average trends, and its price forecast range based on implied volatility. We’ll also review the changes in its institutional holdings and short interest. We’ll also analyze its forward valuations compared to its peers, PEG ratio, and correlation with WTI crude oil.

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