Royal Dutch Shell has cut its shareholder dividend for the first time since the second world war following the collapse of global oil prices due to the coronavirus pandemic.
The oil giant told shareholders, including thousands of retail investors and pension funds, that payouts for the first quarter would fall by two-thirds to 16 cents a share. It is the first time that the FTSE 100s biggest dividend payer will reduce payouts for its shareholders since the 1940s.
Ben van Buerden, Shells chief executive, said the company would take “prudent steps” to protect its financial resilience “under extremely challenging conditions” caused by Covid-19.
The collapse in global oil prices following the outbreak of the pandemic earlier this year caused Shells profits for the first quarter to tumble to $2.9bn (£2.3bn), down 46% from $5.3bn in the same quarter last year.
“Given the continued deterioration in the macroeconomic outlook and the significant mid- and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell,” Van Beurden said.
Shells decision to cut its dividend for the first time in almost 80 years, to a total of $3.5bn for the quarter, breaks with a decades-long taboo against cutting shareholder returns.
Earlier this week, BPs new chief executive, Bernard Looney, said the board had decided not to cut its dividend for the first quarter despite plunging to a loss. BP has cut its dividend only twice in the last 30 years, the latest was in the wake of the Deepwater Horizon tragedy in 2010 which led to 11 fatalities and a bill topping $65bn. He did not rule out future cuts to manage a slow oil market recovery.
Chad Holliday, the chairman of Shells board, said: “Shareholder returns are a fundamental part of Shells 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.”
Shell will also stall plans to buy back the shares which it paid to shareholders in lieu of dividends during the previous oil market downturn in 2015.
“As conditions allow, the board will continue to evaluate our capital allocation priorities between ongoing investment in our business, maintaining a strong balance sheet and increasing returns to shareholders, which remains our ambition,” he said.