Shell cuts dividend for first time since WW2

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Royal Dutch Shell has cut its dividend for the first time since World War Two following the collapse in global oil demand due to the coronavirus pandemic.

The energy giant also suspended the next tranche of its share buyback programme.

The move came as it announced a 46% fall in first-quarter net income to $2.9bn (£2.3bn).

Chief executive Ben van Beurden warned of “continued deterioration in the macroeconomic outlook”.

He said Shell was taking “further prudent steps to bolster our resilience” and “underpin the strength of our balance sheet”.

Shell is cutting its quarterly dividend by two-thirds, from 47 cents to 16 cents, starting in the first quarter of this year.

The company said it had also cut activity at its refining business by up to 40% in response to the sharp fall in demand for oil.

Earlier this week, rival oil giant BP said its first quarter profit had dived by two thirds, and warned it was facing an “exceptional level of uncertainty”.

‘Devastating’ for investors

Russ Mould, investment director at AJ Bell, said: “Shell’s decision to reduce its dividend is devastating to investors across the country, as so many people own its shares directly or through their pension as an important source of income.

“Investors risk putting money into the markets in order to stand a chance of achieving a better return than cash in the bank. While rates on cash savings accounts have been drifting down for a while, investment dividends were widely considered to be much more reliable.

“Sadly that is no longer the case, given how more than 300 companies on the UK stock market have this year said they won’t be paying dividends for the time being or paying a much lower level than before. This figure includes 41 companies in the FTSE 100.”

David Barclay, senior investment manager at Brewin Dolphin, said Shell’s move reflected “the unprecedented economic impact of Covid-19”, but was more sanguine about the long-term effects.

“On the face of it, the dividend cut and cancellation of share buybacks may be seen by some shareholders as a negative move in the short term.

“However, looking further ahead it could well prove to be the right step, as Shell looks to strengthen its financial position and cut costs during a very difficult time.”