Shell flags dividend boost and $2 billion share buyback

A better dividend now leaves the shares sat on an estimated yield of over 4.5%. Buy, sell or hold?

Second-quarter results to 30 June

• Adjusted profit of $5.53 billion, up from $638 million in Q2 2020
• Net debt down 16% year-over-year to $65.7 billion
• Quarterly dividend of 24 US cents, up from $17.35 cents in Q1 2021
• Launching a $2 billion share buyback programme

News of increased shareholder returns in these second-quarter and half-year results is greatly welcomed, if not a total surprise given Royal Dutch Shell's (LSE:RDSB) trading update earlier this month. 

A strengthened balance sheet and improved economic outlook underpin management’s confidence in launching a $2 billion share buyback programme and hiking the dividend by 38%. That now leaves the quarterly dividend payment at 24 US cents share, up from 17.35 cents in the prior first quarter, although still down from the 47 cents paid prior to the onset of the pandemic. A target to increase the dividend by 4% per year is being retained. 

Higher oil and gas prices have helped adjusted profit rise to $5.53 billion, up from a pandemic-hit $638 million this time last year and surpassing analyst expectations of nearer to $5.2 billion. Net debt of $65.7 billion compares to $71.3 billion at the end of the first quarter 2021. 

Oil product sales volumes of 4,552 thousand barrels per day for the quarter are up 9% on the 4,164 thousand b/d figure achieved in the first quarter, although still comfortably below the 6,500 thousand barrels per day achieved back in the pre-pandemic second quarter of 2019.

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In all, a dire outlook at the start of the pandemic forced Shell to reset its finances, with around $20 billion removed from its outgoings, including last year’s first cut of the dividend since the Second World War. Asset sales and a refocusing towards low-carbon power arenas have further set the tone of the company’s transition. 

But a 150% plus rise in the oil price since pandemic lows in March 2020 has boosted cash flows and allowed it to reduce net debt to its former target of $65 billion. As such, and as previously flagged, an increase in shareholder returns is now being made, with the increase in the more permanent dividend payment seen by management as an indicator of its outlook confidence. For now, and with analysts estimating a fair value price of over £17, market consensus opinion remains highly favourable in tone, pointing towards a ‘strong buy’.