Proactive Investors - Shell has scope to up its dividend by 25% as early as its first-quarter results on 4 May, according to analysts at Barclays (LON:BARC).
The oil giant has a capital markets day (CMD) scheduled for 14 June, but Barclays does not see the need for it to wait until then to make a decision on the payout.
“A 25% increase in dividend is, on our analysis, very affordable and could be announced with the first quarter result, leaving the CMD to focus on the long term.”
Shell (LON:RDSa) will be awash with cash even if the crude price drops back to US$60 per barrel, according to Barclays’ calculations.
Its strategic direction is set, so the focus now for new chief executive Wael Sawan is operational excellence and addressing the dividend/share buyback mix.
“In its fourth quarter, Shell announced a 15% increase quarter/quarter in the dividend, around 20% higher year-on-year, but still some 40% below 2019’s fourth quarter, when the oil price was around US$63/bl.”
“Yet even at US$60/bl we see the Shell business as capable of generating at least US$45bn of cash flow from operations.
“With capex at that oil price set at around $25bn, this implies US$20bn of free cash flow (FCF) per year.
“As such, we see an annual US$8bn dividend payment in absolute terms as very conservative.
“Instead, we would see a US$10bn dividend (25% higher than today) and a US$5bn per year buyback at US$60 as a more appropriate framework.”
'Overweight' with a £33 price target is Barclay’s rating, with shares today down 0.6% at £24.41.