Shell beats profit forecasts a year after slashing the dividend

29th April 2021 09:37

Keith Bowman from interactive investor

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Debt reduction remains core, but a progressive dividend policy is being pursued again. Buy, sell or hold?

First-quarter results to 31 March

  • Net income up 13% year-over-year to $3.23 billion (£2.33 billion)
  • Group net debt down 4.2% year-over-year to $71.3 billion
  • Dividend payment up 4% from the previous quarter to 17.35 US cents per share

Fortunately for investors, these latest results came without the drama seen this time last year when Shell (LSE:RDSB) cut its dividend for the first time since the Second World War. 

Extreme winter weather hitting its US Texas operations has dragged on adjusted earnings, although, as with rivals, an upturn in energy prices has aided profit generation. Overall adjusted earnings of $3.23 billion have just about beaten expectations of closer to $3.1 billion. 

Sales volumes under the ongoing global pandemic are down from the previous fourth quarter, although in line with the management’s recent guidance. Reduced operating expenses have been aided by lower maintenance costs and reduced marketing spend. 

In all, lower profit margins in the low-carbon power and renewable energy sectors have made reducing the cost base vital over the past year, as Shell looks to compete with both existing players and other oil majors moving in a similar low carbon direction. The reduction of elevated debt continues to require management attention and for now, stands at a level too high to yet commence share buy backs. 

But Shell’s strength in lower carbon liquefied natural gas, given its previous acquisition of BG Group, should not be forgotten. Last year’s decision to rebase the dividend is now freeing up cash to help tackle debt, with share buybacks potentially on the horizon. A progressive dividend policy is now being pursued, while a historic dividend yield of over 3.5% is still not derisory in a world of ultra-low interest rates.

In all, and with analysts estimating a fair value price of over £17, market consensus opinion is highly favourable in tone, pointing towards a ‘strong buy.’

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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