Royal Dutch Shell shocked investors by cutting its dividend for the first time since the Second World War, citing the weaker oil price and uncertain future demand.
Shell announced it would be rebasing the first quarter dividend to 16 cents a share, down two-thirds on the same quarter the prior year.
The oil major was the single largest dividend payer in the FTSE 100, a crown that will now likely pass to rival BP.
BP held its dividend steady at 10.5 cents a share for the first quarter, despite its debt levels increasing beyond the 20-30% gearing goal.
Brent crude fell to below $30 a barrel at the end of April, despite the Organisation of the Petroleum Exporting Countries (Opec) agreeing with key ally Russia and other non-Opec members to cut production, after forecasts for future demand plummeted in the wake of the Covid-19 outbreak.
Chair of the Board of Royal Dutch Shell, Chad Holliday commented: “Shareholder returns are a fundamental part of Shell’s financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the board believes that maintaining the current level of shareholder distributions is not prudent.”
After the oil price initially crashed in March, the group unveiled a 20% cut in capital expenditure and plans to freeze the share buyback scheme. Shell also borrowed $12 billion at the start of April to boost liquidity to $40 billion.
Analysts at Killik & Co said they had been cognisant of the risks of the integrated oil & gas names cutting their dividends in the current economic downturn.
“However, despite Shell’s move today we continue to believe that these businesses are the best placed within the sector to navigate the current challenging environment due to the relative strength of their balance sheets, the diversification of their operations and their ongoing fiscal discipline,” the financial advisory group said.