As expected, 4Q2015 was characterized by steep declines in profit and revenue for Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B). Will the management of Shell now consider doing away with dividends as the market condition remains persistently tough?
Quarterly dividend declaration
Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s board authorized interim quarterly dividend of $0.47 per ordinary A and B shares ($0.94 per ADS) for 4Q2015. The declared dividend is same as dividend for the same quarter a year ago.
Additionally, Shell is expecting to keep paying dividend to shareholders although it has seemed as though trimming dividend would help during these trying moments. The board hinted at approving another dividend of $0.47 per ordinary shares for 1Q2016. Firm announcement on the 1Q2016 dividend will come on May 4.
Cash and share-based dividend
Shell doesn’t pay all its dividends in the form of cash. Some investors elect to receive all or a portion of their dividend payouts in the form of new shares under what the company calls Scrip Dividend program.
Lower cash need for dividends
Given its strategy to allow shareholders to choose the form in which they intend to receive dividends, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) doesn’t worry much about availability of cash to distribute to shareholders. Perhaps that explains why the company has chosen to keep dividends even when it seems rational that eliminating dividends was necessary in these times.
Shell paid $1.8 billion in cash dividends and $1.2 billion in new shares dividend during 4Q2015. Assuming that quarterly cash dividend averages $1.5 billion or $6 billion on annual basis, you get the impression that Shell can sustain the payout even if oil market rout continues. Like most other oil companies, Shell can borrow to fund dividends if free cash flow dries out.
Dividend to remain in place
Because of its cash/share dividend strategy and the commitment to return value to shareholders, it does seem likely that Royal Dutch Shell plc (ADR) (NYSE:RDS.A) will end dividends payouts despite shrinking profits.