Shell Q4 profit disappoints but dividend gets a boost

The final quarter of 2025 was one which Shell (LSE:SHEL) will want to forget, although the numbers for the year as a whole were slightly more palatable.

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The volatility of the oil price inevitably had an effect as tepid demand and oversupply put a dampener on any price progress. For the final quarter, Shell reported income of $4.1 billion, down by 22% on the previous quarter, and adjusted earnings of $3.26 billion, down 40% and some way below the consensus for $3.51 billion. The quarter was marred by lower realised prices and marketing margins and higher operating expenses.

Taken in the context of the whole year, income of $17.84 billion represented an increase of 11% on the previous year, although a 22% drop in adjusted earnings to $18.53 billion was a disappointment. At the same time, cash flow from operating activities also fell by 22% to $42.86 billion, while net debt increased to $45.69 billion from a previous $38.8 billion. 

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Lower LNG prices and chemical margins weighed on the overall numbers, while the Renewables and Energy Solutions business remains loss-making for the most part. More positively, higher volumes and lower operating expenses provided some respite, and $2 billion of cost reductions also partly offset some of the weakness being seen elsewhere.

Despite heightened geopolitical tensions, Shell is now undergoing more conservative capital expenditure, guiding for a range of between $20 billion and $22 billion for this year, thus underpinning shareholder returns. In addition, its diversity of operations across oil, gas, chemicals, and retailing regularly allows one area of strength to counter another of weakness.

Management’s previous estimate that the dividend could be sustained even with the oil price as low as $40 per barrel - currently around $68 - is noteworthy, while a focus on reducing costs continues. 

Indeed, overall returns are boosted by a dividend yield of 3.7% as well as a multi-billion dollar share buyback programme, where Shell confirmed that the rate which is currently running at $3.5 billion per quarter will continue, underlining the group’s overall financial power.

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The headwinds have led to a share price which has increased by 8% over the last year, as compared to a gain of 21% for the wider FTSE100 and is one which may appear pedestrian by Shell’s standards, but it does not reflect the whole story. The gain was achieved despite a dip of around 9% in the oil price over that time, so it rates as outperformance. In addition, investing in Shell has always been a marathon rather than a sprint in displaying patience in equity investment, with the shares having risen by 120% over the last five years for example.

Some investors are unwilling or unable to invest in oil stocks on ethical grounds, but the company remains a core constituent in many traditional portfolios alongside the old adage of “never sell Shell”. Investor enthusiasm for prospects on the immediate outlook may have cooled, but the market consensus of Shell as a cautious buy remains in place, with the group still preferred over major rival BP (LSE:BP.).