When a 75-year run is broken, something significant has probably happened.
If you are of a certain age, ‘Keep going well…’ could have you instantly remembering the rhyming counterpart; ‘Keep going Shell’. At the end of April 2020 that 1960s advertising slogan suddenly looked particularly jarring to many investors.
Royal Dutch Shell, to give the company its proper title, announced on 30 April that it would be cutting its quarterly dividend and it was not just any cut: the payment was to fall from $0.47 to $0.16 per share. The near two thirds reduction shocked the market. It was the first time the company had lowered its dividend since 1945. In recent times it had seemed that Shell would do anything – sell assets or even borrow – to make sure the money was there for the quarterly payment.
Shell has regularly been the biggest payer in terms of the total amount of cash it handed out – for each of the last five years it topped Link Asset’s list of dividend payers. It has been a core holding of many income funds and individual investors’ portfolios for that very reason.
Shell pointed to “…the pace and scale of the societal impact of Covid-19 and the resulting deterioration in the macroeconomic and commodity price outlook” to justify its axe-wielding. However, it also said that it was resetting the dividend, which is corporate-speak for saying 16c a share will be the new base level, not just a temporary adjustment.
The oil sector has been falling out of favour with some institutional investors who see it as increasingly problematic on both ethical and financial grounds. Goals for global carbon reduction are difficult to square with the way in which big oil majors make their money. There is a growing concern that the companies could find themselves holding “stranded assets” – oil reserves that are just not worth extracting.
The Shell story is a good example of the growing relevance of ethical considerations in investment decisions. There is now over £25bn invested in ethical funds according to the Investment Association.