Shareholders in Royal Dutch Shell (LSE: RDSB) had a good Thursday, after strong results saw the Shell share price leap. Higher oil prices boosted cash flow, leading to a sharply higher dividend and new share-buyback programme.
The Shell share price gushes
As I write, the Shell share price stands at 1,439.42p, up 55.42p (4.0%) since Wednesday. This values the energy supermajor at £113.3bn, placing it #2 among the FTSE 100‘s super-heavyweights. This followed sound results from the Anglo-Dutch oil & gas producer.
In the second quarter of 2021 (Q2/21), Shell’s free cash flow soared to $9.7bn, the highest level since pre-pandemic Q1/20. Shell’s adjusted earnings leapt to $5.53bn, versus an average analyst forecast of $5.07bn. This was 8.67 times the $638m recorded in Q2/20. It was also Shell’s highest quarterly earnings since Q4/18 — and well ahead of the previous quarter’s $3.2bn. Clearly, these financial improvements also boosted the Shell share price.
Another tonic for the Shell share price came from debt deleveraging. The group reduced net debt from $71.3bn in Q1/21 to $65.7bn in Q2/21, a fall of $5.6bn (7.9%). Also, Shell said it will cap its 2021 capital expenditure at under $22bn. Any future capex increases will largely go towards low-carbon and retail investments, the group confirmed.
You can be sure of Shell (or can you?)
Older readers will remember the famous Shell motto (introduced in the 1930s): “You can be sure of Shell”. But the energy titan had a horrid 2020, cutting its dividend for the first time since 1945. Shell’s once-reliable quarterly cash dividend was slashed from 47 US cents to 16 cents, a reduction of almost two-thirds (-66.0%). The next two quarterly dividends were both 16.65 cents, while the Q1/21 payment rose to 17.35 cents. But the really great news for shareholders was the dividend will rise to 24 cents a quarter from Q2/21. That’s a surge of almost two-fifths (38.3%) — one hefty uplift. Even so, at 24 cents, Shell’s quarterly dividend is now just over half (51.1%) of its pre-pandemic level of 47 cents.
Another bonus for shareholders — and the Shell share price — is a new round of share buybacks. Shell will buy $2bn of its own shares in the open market between now and the end of 2021. Analysts had expected this figure to be closer to $1.5bn. By reducing the number of shares in circulation, buybacks make the remaining shares more valuable. Over time, this should help to support the Shell share price.
[fool_stock_chart ticker=LSE:RDSB]What next for Shell?
Right now, Shell is in a pretty sweet spot. Last year, the price of Brent Crude oil slumped to a low below $16 a barrel on 22 April 2020. At the start of 2021, a barrel of Brent cost $45. As recently as 14 July, it peaked at $76.72, before easing back to today’s $75.40. With the Brent price gushing higher by almost three-quarters (+72.4%) over the past 12 months, it’s no wonder the Shell share price has roared back since October 2020.
By the way, the Shell share price slumped to a 52-week low of 845.1p on 28 October 2020. On 12 March 2021, it hit 1,523p — its 52-week high. This means that the stock currently lies just 5.5% below its 2021 high. However, Shell’s policy of increasing its dividend by 4% a year may provide ongoing support for this FTSE 100 mega-stock. Then again, with two major oil-price shocks since 2015, some investors still won’t be sure of Shell!