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Thanks I see that now
Mathematically I was trying to get my head around whether the benefit of being able to buy half as many shares again for a given amount of cash could benefit shareholders in the long term but had totally lost sight of the argument re fundamental valuation
Have set my next buying price at £16 but shares have temporarily recovered from 1650 level to 1675 but now eyeing WS futures
This whole scenario hasn’t really played out long yet... the sharpe drop across the markets has been indiscriminate across all sectors and names.
The amount to be paid out for the dividend hasn’t changed just the % against the current SP. that can equally snap back fairly quickly which I believe the longer this drop goes, the sharper the recovery.
Oil companies similar to tobacco stocks are money making machines where debt is used as a matter of course and the high yields are a necessity to maintain the investment of the funds looking for said yields.
Like many times where fear is at its worse, could be an excellent entry point.
The high % yield is simply a function of the falling sp driven by the fall in oil price, antipathy towards fossil fuels and now the CV. We can only hope this isn't used as an excuse to adjust the dividend downwards. That'll cause a downward shift in the sp.
Technical question anybody
If the share price keeps falling does the buy back by virtue of cancelling more shares make the EPS improve and dividend more affordable?
Some times you just have to look back into history ...
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Picking stocks? Sometimes the decision is a no-brainer
Shell is paying out pretty much all its profits to shareholders
Extract
When Shell announced an 80pc drop in profits last week, its shares rose by 6pc, making it one of the best performers in the FTSE 100. That might sound perverse, but it makes complete sense when you consider that the oil major had become what I call a “one-decision stock”. That’s a company for which the decision to invest is so dominated by one consideration that anything else is academic.
In the case of Shell, the consideration was very simple. Would the company maintain its $1.88 (£1.30) dividend? Shell’s shares have fallen so far in two years – from a high in May 2014 of 2,592p to a low last month of 1,278p – that holding the pay-out would provide a new investor with an income yield of almost exactly 10pc.
With the monetary policy committee at the Bank of England now unanimous on keeping interest rates at their 300-year low of 0.5pc, a sustainable 10pc income is as close to a no-brainer as equity investment can provide. By the time the results were announced Shell’s shares had rallied a bit from January’s low point so the yield was “only” 9pc, but it was still firmly in “one-decision” territory.
Shell’s chief executive Ben van Beurden was never going to guarantee the dividend in 2016 but he could hardly have been clearer about his intentions. Cutting capital expenditure by a quarter, shedding 10,000 jobs and selling assets worth $40bn is a set of measures with only one aim – to ensure that he does not go down in history as the first Shell boss to cut the dividend since 1945.
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... and that's from Feb 7 2016 ... 4 years ago almost to the day. They didn't cut then, they won't cut now ... every share bought back, if not bought back would fund the dividend for 10+ more shares, plus there's always script dividends and lots of folk would bite their hands off for them. Back then oil was £35 and there were more shares in issue.
Mike