The oil giant Royal Dutch Shell is set to raise dividends to investors despite experiencing modest profits. The huge energy firm is expected to pay investors 16.65 cents as part of its pledge to hike its payouts to shareholders. This comes at a time when the brand has had to lay off huge numbers of staff amid uncertainty surrounding the Covid-19 pandemic.
Shell has had a long record of increasing its payout to shareholders. But last month saw the energy firm cutting its dividends for the first time in over half a century. This was part of a cost-cutting initiative aimed at staving off the troubles that had been afflicting the oil industry as a whole.
The announcement caused shares in Shell to jump by 4%. This was joined by the welcome news that Shell’s earnings in the third-quarter were better than expected. The earnings of $955 million might have been down 80% from the previous year, but it was feared that it could have been much worse.
Shell had previously recorded a profit of $4.76 billion for the third-quarter in 2019. But the collapse of oil prices caused widespread industry pessimism with some commentators predicting that the energy giant would only record a $146 million profit.
Such news was a contrast to previous dividend announcements. These included last year’s announcement where payouts were slashed from 47 cents to 16 cents a share. All of which was a big fall from grace from a company that was well known for being one of the largest dividend payers on the FTSE 100.
Energy powerhouse seeks to reduce debt
As such Shell has been working hard to turnaround what has been one of the most troubling episodes in its 113-year history. The oil giant announced proposals to reduce its net debt to $65 billion from $75 billion. Following this, there would be a 30% distribution of cashflow to shareholders via dividends.
This comes amidst a backdrop where Shell reported a staggering net loss of $18.3 billion in the second quarter of 2020. The time also saw the brand slashing the value of its oil and gas assets as global demand for transport fuels withered away. Not only has the energy firm had to deal with the effects of the pandemic, but everything from hurricanes in the Gulf of Mexico to changes in OPEC requirements have affected demand.
Such a shock has meant that Shell had highlighted its mission to be a net-zero energy brand by 2050 at the latest. With renewable energy stocks enjoying a strong rebound, such measures look like a wise move.
Other oil brands like BP have seen their share prices falling to the lowest point in decades. With Brent Crude falling from $70 a barrel in January to less than $20 in April, it has meant that there has been a glaring hole in the balance sheets for the industry’s leading brands. All of which makes Shell’s decision to up payouts to shareholders all the more striking.