RE: RDS in context18 Oct 2020 13:04
Following on from my post yesterday in which I noted that Chevron’s sp, with a continuing progressive dividend, has been in steady decline since June, I pondered where RDSb would be today had they not cut the dividend. The answer, based on the otherwise close tracking of RDS and Chev, can be read straight off the second chart at around 1200. This places RDS at theoretically 250 lower today than it would have been had the dividend been maintained. Now a difference of 250 (21% down from 1200) is about a third of what you might expect in order to maintain yield when the divi is cut by 66%.
RDS’ yield today, at about 5%, has therefore reduced compared to its level at the end of 2019 when the sp was around 2200 and the yield was near to 6.5%. It is also well below Chevron’s current yield of 7% - which indicates that the market views Chevron’s dividend as riskier and that RDS’ sp today is consistent with a reasonable level of confidence in the current 5% return.
So, are LT RDS investors hanging onto their shares purely because, as a self-professed academic here seems to suggest, they blindly assume or hope that the sp of this ‘legacy’ company will return to previous levels? Possibly but, more likely, they will have rationally considered whether they can achieve better levels of return and growth prospects elsewhere with their remaining capital. Many will presumably have been trading on the way down to mitigate at least some of their losses and will continue to trade the peaks and troughs to further reduce their capital loss whilst simultaneously releasing cash to compensate for the reduced dividend income.
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