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Dividend cost always has to be higher. If you plan on worst case scenario then as a business you are sacrificing a lot of growth and returns by not taking any risk via debt. As good as keeping your money in bank.
Shell's management is the big problem - because if you have to cut the dividend in the pandemic while screaming the oil prices will not rise for years to come, raising it now to older levels makes them look like biggest fools that God ever let through the door. So once most of the pandemic time senior executives are kicked out - a new team will realize the amount of cash thrown out by Shell and how to return it. For that hopefully more activist hedge funds should circle around shell. There is about 50% of gains left on the table due to the incompetent management. Fair value is just above £33 per share.
Maybe instead of $6bn per quarter of share buybacks, Shell could have increased the quarterly dividend payment amount from $1.8bn to $2.8bn and used the rest of the $5bn to reduce net debt from $46bn to $41bn? Bp has reduced its net debt massively the past quarter and increased dividend and buybacks much more than Shell - and their share price has outperformed ours by more than 5% in less than a few weeks, even though bp has a terrible investment case.
Exactly. Hit the nail on the head. We definitely need a new CEO who isn't asking silly questions. Maybe the new CEO can start off by resetting the dividend to pre pandemic levels. And isn't afraid of running a profitable commodity company. Look at BHP, record profits and record dividend on coal prices but not as afraid as Shell to hand it over to the owners. The management seem busy worrying about their cushy WFH jobs and £1mn + pay packages, rather than what's good for the shareholders and the company's valuation.
Bp is nowhere close to Shell's investment case. Shell is massively undervalued - while bp is accelerating towards the light at the end of the tunnel even though it can hear the train horn blaring, with its plan to cut its production by 40% by 2030.
Unfortunately hard to see any low risk, high upside mega cap in the oil and gas sector in UK apart from Shell. Actually globally, Shell is the most undervalued supermajor only because its in a terrible neighborhood(Europe) and a subpar management but with superior assets. Buying now into ExxonMobil or Chevron means you are automatically down close to 10% due to gbp depreciation against USD.
The hope is that Third Point manages to rally shareholders in changing the management structure and company for better. If you are listed in a banana republic sort of jurisdiction where profit is socialized(2022), while losses are privatized(see 2020) , management has a fiduciary responsibility to look for a solution including moving HQ to a country(USA) where similar sized companies are not seen as giant octopuses. Everyone wants a handout via WFT. But if Shell is broken up, there will not be a big monster to blame for everyones problems. ExxonMobil and Chevron will be insulated by such silly taxes in USA because being profitable is celebrated in the US while in Europe its frowned upon.
Hopefully other shareholders who communicate with the IR and management can see some value on these boards via these discussions and help ask tough questions.
Given that this jump in energy prices would be in October - the Shell's management team will have another excuse to not raise our dividends significantly during the Q3 results announcement. Bp has raised their buybacks and dividends more than Shell and no wonder BP's share price has outperformed Shell by 5% in the past week since the Q2 results. That's a huge outperformence among super majors and that's with the inferior asset base of bp .
So Shell has given $500mn to its employees this quarter with the 8% salary bonus which Shell says is not part of cost of living crisis measures. So that seems will be on top of this bonus? Have not heard ExxonMobil or Chevron or others do this yet? Shell does seem like a job factory for these work from home management layers. Strangely ExxonMobil is still cutting jobs to increase efficiency and reduce costs.
The top shareholders of Shell who possibly might also be top shareholders of ExxonMobil, should compare the two managements and suggest changes to Shell. Why this soft treatment of Shell's management and board? Shell's dividend yield is close to 3.5%. Inflation is 9%. Interest rates are forecast to be 3% to 4% in the USA by end of year. What education or economics degrees do the senior management and board have which doesn't let them understand risk free return and need to increase returns to shareholders in a cyclical industry? When bp who has just lost $25bn worth of assets in Russia has declared relative buybacks and dividend returns more than Shell, it says a lot about this managements competency.
Not just retail shareholders but also the analysts on the Q2 analysts call - almost every one of them questioned the management's judgement in not raising dividend levels. With quarterly free cash flow of $10bn, its such a shame they did not even increase the quarterly dividend by $1bn per quarter, so as to make an effort to get back to pre pandemic dividend levels.
The CFO suggests that the big institutions like buybacks so they went with buybacks instead of dividends. They should do buyback after they have fixed their mistake of cutting dividends in the first place. Should call the Investor relations and give them an earful that they can pass on to the board and management.
https://www.youtube.com/watch?v=_F-BrMAQOH4
Analyst expectation before the results was of a 30% increase to dividend. Which obviously was not met by Shell.
"Biraj Borkhataria, head of European energy research at RBC Capital Markets, said Shell could raise its dividend by 30 per cent, to 33 cents per share."
https://www.thetimes.co.uk/article/centrica-and-shell-profits-bring-sector-back-under-scrutiny-gjczrh622
Not if the Shell management highlights that they are only taking the dividend back to pre pandemic levels. An increase in dividend is actually misleading as the Shareholders have performed poorly since pandemic even at record high energy prices. But highlighting that shareholders had done poorly is a reflection on the management who have been poorly performing even at record commodity prices. Even a 100% rise in dividend levels will take us only to pre pandemic levels. Still much lower than what ExxonMobil, Chevron shareholders have gained over the years.
With $10bn of free cash flow every quarter, hard to see how Shell doesn't match ExxonMobil's $3.8bn per quarter dividend payment amount - which will put us above 50c per quarter with all the buybacks. And with all the cash accumulating every quarter - if the management doesn't choose to do a reckless acquisition in green space, calls by shareholders will increase to return the excess cash back. Hence there is a sizable 40-50% upside to Shell's current share price including possible big dividends.
Not by 10%. Shell needs to increase dividend by at least 70% to get to at least 42c per quarter dividend which is still lower than pre pandemic levels of 47c. Bp has lost $ 25bn worth of assets in Russia, no one expects them to increase dividends by more than 10%. But Shell's management has no excuse.
Let's hope Shells shareholders pressure the management to revert the dividends and return more cash via dividends instead of just buybacks. A lot of FTSE100 companies who brought back more than 10% of their shares outstanding for years via buybacks have seen their share price go nowhere - a lesson for the Shell's management who lack foresight or investing in a cyclical industry. No point buying back shares at high oil prices only to stop it at the low oil price levels or worse cutting the dividend like a disgraceful management.
Night - what I meant was that Shell had a net debt of close to $75bn in early 2020 - when the board of directors of Shell decided to cut the dividend from 47c to 16c.
In Q4 2019, before the pandemic, Shell had a net debt of $79bn and dividend of 47c per quarter and that too at an oil price of $65/bbl. From Q4 2019 to date the net debt has dropped by $33bn(much higher than $25bn I alluded to earlier). Yet with net debt down so much, the dividend has not reverted back to the Q4 2019 levels and neither has the share price(imagine if oil price was $65/bbl today, we'd be trading down below £16 per share or something, with this level of management incompetence).
Yup might have to do that unfortunately but only thing holding back is the fact how undervalued Shell is because of the management and the holding that Third Point has and possibly their activist call for breaking up Shell finally works and other shareholders see value in it. Doesn't make sense for Shell to be trading below Jan 2020 levels with net debt down $25bn + and oil and gas prices near record. Something has to give and either this will attract other activist shareholders or Shell management finds another way out to increase the share price to reflect fair value in line with other majors in the industry.
The new CFO is worse than the previous one. Any of the questions asked by analysts she just reads out what's already in the press release. She doesn't provide any new information or color on the questions as the previous CFO did. Might as well just read the press releases. And the CFO is not the decision maker - its the board and CEO. They are largely still the same - even the new chairman unfortunately has been sucked into the green utopian strategy dream.
This CEO and board refuse to accept that the world has changed after the war. The world has put climate change transition on a hold for surviving the present energy crisis. No point on planning a climate change transition for future if the current social cohesion is destroyed due to lack of energy, heating etc and world descends into anarchy. And of course Shell didn't do investments counter cyclically as ExxonMobil or Chevron did during pandemic. No wonder ExxonMobil and Chevrons share prices were up 5% and 8% yesterday after their results even though they didn't increase shareholders returns much.
What does that tell you? Market is saying ExxonMobil and Chevrons management teams are much more valuable in capturing the current returns than this Shell management who refuses to accept the world has changed and needs to change its strategy. The CEO knows he is looking like a fool for buying into the green energy strategy at its top, and selling out the oil and gas plan at its bottom in early 2021 to its shareholders. And now he refuses to accept the mistake and shareholders are suffering. Definitely need a new CEO from outside Shell who can accept a new reality and understands the value that energy companies should be able to command in the current energy crisis environment.
Just about everyone after the record profits, sadly including its shareholders and investor community by not raising the dividend significantly. With a free cash flow of $12bn per quarter, surely they could have raised quarterly dividends by at least $1bn instead of just $6bn buybacks? Current $1.9bn quarterly dividend amount would have increased just to $2.9bn while the dividend amount would have increased close to 40c or 32p per quarter? Would have increased the retail shareholders income stream significantly to offset inflation.
Looking at the petrol and diesel prices of 190p and 198p per liter, everyone would think Shell shareholders are raking in big profits and income. Sadly they don't know that the incompetent management who cut the dividend in half during the pandemic is still in charge of Shell, hence shareholders and the share price are both suffering. How and when is the change in strategy coming at Shell?
Bp has an excuse that it just lost $25bn worth of assets so it can't raise dividends much. What excuse does Shell's management have to not reverting to pre pandemic dividends, especially after the windfall tax? Raising it little by little will only pull more media attention with every rise. Doubling the dividend in one and done fashion will attract less scrutiny as time passes.
Boyo - there is a lot of value in the assets although in the hands of a media pleasing, non shareholder friendly management. Majority of the analysts see £30 per share is the least price target given the cash flows and LNG price prospects.
ExxonMobil is valued at more than double of what Shell is valued at. And both have same cash flow generation capabilities although under widely different management competency. The only way the value can be out would be through the activist shareholders getting a competent management in or spinning off and IPOing certain businesses of Shell.
Boyo - correct, nothing against green transition, but calling out the timing and intention of Shell's management pivoting to being a net zero energy company at the bottom of the oil price cycle, and selling that green utopian company transition as a reason to cut dividends. Making dividends grow by 4% per annum will take many years just to reach pre pandemic dividend level of 47c per quarter.
With the world's biggest LNG portfolio and when LNG and gas prices are at record levels and your assets are not getting the market love which they deserve, that only means that the market is pricing the uselessness of the management. If the CEO complains that the share price is very under priced that's because market doesn't believe in this management and their execution of vision even though the assets are best in class.
Dividends for major companies are holy grail equivalent. They will cut the board and company size in half before thinking about cutting the dividend. After not being able to defend the cornerstone dividend in 2020 this management has lost all respect of oil and gas investors and also wider investor community. Bp is another example of this and their share price reflects that story. In addition bp will not be able to increase the dividend because they just lost $25bn worth of Russian assets.
What magic calculator do you have? Shell's dividend is down close to 50% from pre pandemic levels. Shell will have to raise its current quarterly dividend by close to 100% to reach the pre pandemic dividend payout (a rise from 25c to 47c per quarter).
And what recession are you talking about - for the oil and gas market, March 2020 was worse than the '08 financial crisis. And 2020 is when Shell's management panicked and cut its dividend for the first time since WW2. The management of Chevron and ExxonMobil didn't wet their pants and cut the dividends at the depths of the pandemic - while Shell's management was running around like chicken Little screaming the sky is falling. Wouldn't be surprised if Shell's management is a laughing stock amongst the BODs of the likes of Chevron, ExxonMobil or Total for cutting their prized dividends.
Shell has sadly become a company that cuts its dividend and it has shaken the faith of the investor community. Big shock and awe of shareholder returns will be needed to win the trust back and hopefully a different management and better strategy guided by possibly activist shareholders, who look to get full value for the business and are not interested in running a job factory with tons of useless management layers.
How does Shell management still justify not reverting to pre-pandemic dividend levels when oil price was at $65/bbl ?
Shell is the only super major who has not gotten its dividend back to pre pandemic levels and hence its share price is below pre pandemic levels. Shell management wasn't as measured when it came to cutting the dividends but is being very measured when it comes to raising it back?
Shell's management is tempting fate - one activist hedge fund has already arrived looking at the low share price. Few more activist hedge funds and this management will be sent home packing given the disastrous shareholder returns and the overhyped green pivot which they sold investors when oil prices were low. Easy to say we will not be an oil and gas company when oil is in doldrums but hard to back it up when the cycle turns for the better.
Shell has taken a beating for the last 7 years when oil and gas prices were low, and chose to pivot to green nonsense right when the oil cycle turned. Surely the management needs to understand they are very bad at counter cyclical execution. If they are so passionate about green agenda why have they not applied for a job at Tesla?
Current political situation? The government has already applied a windfall tax and now the CEO and board should get the dividend increase fearlessly.
Hard for management to justify why Shell's dividend and share price is so much lower than Jan 2020, when oil and gas prices were a lot lower. In my opinion Shell should double the dividend to 40p per quarter and anything less than that is shameful for this management. Hard to see them do it though as this management is very scaredly and measured when it comes to increasing the dividends but when it came to cut they cut it down by over 60% just like that.
Berkshire goes after shareholder friendly and value creating managements. Shell doesn't have either currently. We don't need Buffet, we need Elliott Management alongside Third Point Capital who can force value creation through inefficient management change via activist investment. Calls for break up of Shell needs to be louder - oil and gas investors don't want to touch Shell, and the net zero investing community doesn't want to invest in an oil company. So no attention from any segment.