Reaction: This is why millions of Shell shareholders are in for a shock

Oil major Royal Dutch Shell has slashed its dividend for the first time since the end of the Second World War as a result of the current health pandemic.

Shell chief executive Ben van Beurden says it is prudent to cut payouts. Picture: Eric Piermont.

Investors will pocket just 16 US cents per share, compared to 47 cents in the same period last year.

Chief executive Ben van Beurden said that it was “prudent” to cut the shareholder payout as uncertainty wrecks the global economy.

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The group – a key North Sea player – took the decision after the “unprecedented” pace and scale of the impact of coronavirus, which has seen oil prices hammered.

Unlike BP, which was forced to slash dividends after the Gulf of Mexico oil spill a decade ago, Shell had not cut its payouts since 1945. Both stocks have been seen as popular defensive holdings among armchair investors.

David Barclay, head of office at Brewin Dolphin Aberdeen, said: “Royal Dutch Shell’s decision to cut its dividend for the first time since World War Two reflects the unprecedented economic impact of Covid-19. The share buyback programme has also been discontinued for now.

“On the face of it, the dividend cut and cancellation of share buybacks may be seen by some shareholders as a negative move in the short term. However, looking further ahead it could well prove to be the right step as Shell looks to strengthen its financial position and cut costs during a very difficult time.”

Tom Ellacott, senior vice president with Wood Mackenzie’s corporate analysis team, said: “The move is a sensible and prudent action to preserve cash in the face of huge macro uncertainty.”

Russ Mould, investment director at AJ Bell, noted: “Shell’s decision to reduce its dividend is devastating to investors across the country as so many people own its shares directly or through their pension as an important source of income.

“Investors risk putting money into the markets in order to stand a chance of achieving a better return than cash in the bank. While rates on cash savings accounts have been drifting down for a while, investment dividends were widely considered to be much more reliable.

“Sadly that is no longer the case given how more than 300 companies on the UK stock market have this year said they won’t be paying dividends for the time being or paying a much lower level than before. This figure includes 41 companies in the FTSE 100.

“Shell’s actions will affect so many people who are trying to earn a good return on their hard-earned savings. Approximately 160 retail funds and investment trusts in the UK have Shell as one of their top holdings, and many more overseas funds will hold the stock. There are also many pension funds on top who invest in the oil producer.”

Oil prices have crashed in the first four months of 2020, with Brent crude dropping to a more than 20-year, below $19 per barrel, earlier this month. Brent was at around $64 at the beginning of January.

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