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How Safe Is The Dividend Of Royal Dutch Shell?

Jul. 10, 2017 4:09 PM ETShell plc (SHEL)68 Comments
Aristofanis Papadatos profile picture
Aristofanis Papadatos


  • Royal Dutch Shell has not cut its dividend since World War II.
  • However, its dividend growth rate has been lackluster at best during the last decade.
  • Its dividend payout ratio is remarkably high while its net debt has almost doubled during the last 4 years.
  • On the other hand, the company intends to sell $25 B of assets this and next year.

While Royal Dutch Shell (RDS.A) (RDS.B) has retrieved half of its losses since it bottomed early last year, it is still 25% lower than its peak three years ago, just before the collapse of the oil price began. As the downturn in the oil market has already lasted longer than initially anticipated, with no light on the horizon yet, the shareholders of the stock are still in pain. Therefore, given that the generous dividend of the stock is the only consolation to the shareholders, it is important for them to evaluate how safe the dividend is.

First of all, the stock currently offers a 7.1% dividend yield, which is the highest among the oil majors. Even more impressively, the company has not cut its dividend since World War II. Therefore, it is only natural that most shareholders are holding the stock for its reliable and growing dividend. As a result, the stock will plunge if the company cuts its dividend.

On the other hand, while the dividend growth record is exceptional in duration, the growth rate has been lackluster at best during the last decade. More precisely, the company has raised its dividend by 2.2% per year on average during the last 5 years and 2.7% per year during the last decade. Moreover, while the current 7.1% dividend yield is certainly attractive, such a high yield usually signals that the dividend is at risk of being cut in the near future. Otherwise, the market would not offer such a high yield, particularly in the prevailing environment of almost record-low yields. Nevertheless, Shell and BP (BP) have already maintained an extraordinary dividend yield for 3 years and may continue to do so despite the adverse business environment.

A concerning issue for Shell is its remarkably high dividend payout ratio, which has been

This article was written by

Aristofanis Papadatos profile picture
I am a chemical engineer with a MS in Food Technology and Economics. I am also the author of 2 mathematics books ("Arithmetic calculations without a calculator" and "Word Problems") and perform almost all the calculations in my mind, without a calculator, making it easier to make immediate investing decisions among many alternatives. I invest applying fundamental and technical analysis and mainly use options as a tool for both investing and trading. I have nearly achieved my goal of early retirement, at the age of 45. In my spare time, I follow Warren Buffett's principle: "Some men read playboy. I read financial statements".

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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