14th Jun 2023 12:36
(Alliance News) - Shell PLC on Wednesday said it plans to buy back shares for at least USD5 billion in the second half of 2023 and also promised to increase its dividend, bringing its yield more in line with some sector peers.
Russ Mould, investment director at AJ Bell, said the move by Chief Executive Wael Sawan will "likely be welcomed" by shareholders as it puts Shell more in line with its US peers.
The fresh buyback is 25% larger than the ongoing USD4 billion share buyback programme that Shell had announced when it released its 2022 results in February. That programme will be completed before Shell releases its half-year results on July 27.
The oil major also said it plans to raise its dividend per share by 15% from the second quarter. Analysts at Berenberg said this implies a quarterly dividend of around USD0.33 per share.
"That would leave a dividend yield of around 4.6% on a forward 12-month basis, leaving it closer to peers with BP having an estimated yield of 4.5% and TotalEnergies at around 5.2%," Berenberg said.
AJ Bell's Mould said that "in principle" this was "good business sense". However, Mould warned the situation is "a little more nuanced" for Shell, as it faces environmental, social, and corporate governance pressure.
"As the effects of climate change become more obvious, political and regulatory pressures will ramp up. Already, Shell is having to fight a Dutch court ruling ordering the company to cut its emissions. In the short-term, maintaining oil production undoubtedly makes financial sense, but doing so exposes the company to new risks too," the AJ Bell analyst warned.
Shell said it will keep crude oil production steady until 2030 instead of a previously planned cut of 1% to 2% per year until the end of the current decade.
Victoria Scholar, head of investment at interactive investor, said that by doing so, Shell is aiming to retain its spot as the "world leader" in liquefied natural gas.
"Shell's rationale is that it has already reached its 2030 oil reduction target. But no doubt this will further infuriate climate change protesters who already stormed Shell's [annual general meeting] last month," Scholar said.
The oil firm plans to reduce emissions from its operations by 2050 and invest USD10 billion to USD15 billion until 2025 to support the development of biofuels, hydrogen, electric vehicle charging and carbon storage and capture.
Derren Nathan, head of equity research at Hargreaves Lansdown, warned that Shell's increasing focus on pay-outs to shareholders is going to restrict the amount of capital available for investing in new technologies and argued that could make its pivot away from oil and gas "more challenging."
Shell's plans are to be presented at an investor day in New York on Wednesday.
Shares in Shell were up 1.8% at 2,336.50 pence on Wednesday afternoon in London. The stock is 1.2% higher over the last 12 months.
By Heather Rydings, Alliance News senior economics reporter
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