Sounding The Last Post21 Jun 2021 11:38
RDSB Share Price on Dividend Payment Day
The Journal entry, which provides the basis of the reporting balance sheet, on the declaration of a dividend, is a decrease (debit) to Retained Earnings (which is a shareholders equity account) and an increase (credit) to Cash Dividends Payable (Accrued Dividends which is a liability account).
At this point no funds have left the company, but they are allocated as a future liability.
On the actual day of payment of the dividend the Cash Dividends Payable Account is debited & the Cash Account is also reduced with a debit entry of, for purposes of illustration, $1billion.
The point of this detail is that Shell does not have a legal obligation to pay out this Interim Dividend of $1billion. If an emergency need for funds crops up, Shell can call on these funds and until the day it goes out of the door it is not absolutely guaranteed to do so. Granted though that payment will probably happen, and generally does uneventfully & seamlessly. It should be noted that all of the RDSB dividend payments are Interim Payments. They are paid without the necessity for shareholder approval, which is a legal requisite with the Final Dividend.
One of the advantages of this policy is that the company literally has a “call” on $1billion from the date of declaration of the dividend to the point of actual payment. A potential “emergency fund” of this magnitude has a value & can and often does change the share price once it is paid out and no longer available. At the point of payment of the dividend the company’s balance sheet reduces in size as assets and shareholders equity are reduced – $1billion in cash exits the business, directly recorded in the Cash Flow Statement.
Anyone who has access to $1billion for say 6-weeks & considers this irrelevant and of no value whatsoever is probably a very wealthy individual or simply incapable of joining up the dots. I shudder to think that an investor can consider and inform others, that the point at which $1billion in cash leaves the business & the balance sheet is $1billion smaller is irrelevant, not significant in any way, and incapable of impacting the share price. Having a call on $1billion has no value – really!!! $1billion exiting the balance sheet and making it that much smaller is “irrelevant” – really!!!
Worth noting the RDSB share price last Friday & first thing today, I took advantage of my predicted buying opportunity this morning & I hope there are others who have done the same. Unless oil prices fall off a cliff we are looking at a steady & then significant rise in the share price towards the 29th July & then the 12th August, against the background of starting to turn back the tide of the panicdemic. Almost totally predictable plain sailing
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