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The Unpopular 5.38% Dividend Yield About To Buy Back ~8% Of Shares Outstanding

May 01, 2018 7:17 AM ETShell plc (SHEL)TSLA67 Comments


  • Royal Dutch Shell is very much out of favor.
  • Students increasingly don't want to work there.
  • The CEO has to answer for his occupation.
  • Meanwhile management is intent on generating a world class total shareholder return.
  • The financial case is hard to dismiss.

Today the Dutch financial paper, FD for short, ran a cover story how students at a prominent technical university (Delft) no longer view Shell (RDS.A) (RDS.B) as a premier destination. This same day the FD also ran an excellent daily column dissecting potential investments under the pseudonym Bartjens. Today it casts doubt on Shell's ability to carry out its $25 billion buyback program. That's just one day of financial media coverage (which is the least hostile kind).

The energy giant has an image problem and according to an annual Universum poll Shell is now only 7th on the list of preferred employers. CEO Ben van Beurden admits to having to answer for his career choice at barbecues, birthday parties and at the breakfast table. I'll presume that means his children are questioning his occupation after having worked there since the early 80's. Tesla (TSLA) happens to take the #1 spot in the Universum poll. Here's the graphic they ran:

I view this as a soft contra-indicator

Five years from now Shell will still be a top 10 employer but Tesla will be gone. Total shareholder returns will mimic that pattern. Excellent for Shell and terrible for Tesla.

Let's get to some factual stuff. On its recent earnings call the CFO said:

We delivered $5.1 billion of organic free cash flow this quarter and $15 billion on a four-quarter rolling basis at an average oil price of $57 per barrel. As you know, we expect to generate some $25 billion to $30 billion organic free cash flow around the end of the decade at $60 per barrel in 2016 real terms. Organic free cash flow generation over the last four quarters is consistent with this outlook. And we expect close to $10 billion in additional free cash flow from new projects between 2018 and 2020. In average prices, around $65 per barrel would add some $5

ChartBrent Crude Oil Spot Price data by YCharts

ChartRDS.A EBITDA (TTM) data by YCharts

This article was written by

Bram de Haas profile picture
Special-Situation And Event-Driven Ideas To Improve Risk Adjusted Returns
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in RDS.A over 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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