On Wednesday, Royal Dutch Shell (LSE: RDSB) delivered good tidings for dividend investors. The oil giant is set to raise its total shareholder distributions, starting with the second quarter. The news gave the Shell share price an early boost, but it fell back by the end of the day.
Maybe investors were buoyed by the headline news, but turned away in puzzlement when they digested the full announcement? I found one bit of perplexing detail, on the subject of debt. Shell had previously said it would lift its shareholder returns once it got net debt down below $65 billion.
But on Wednesday, the company merely told us it will “retire” that $65bn debt target. What does that mean? From the plan to raise returns, are we to deduce that the target has been met? Or is Shell going to increase its payouts without hitting it? I hate this kind of mealy-mouthed company speak. So come on Shell, please just tell us straight. Have you met your target, or have you abandoned it?
Time for a re-evaluation
Anyway, that annoyance aside, this does seem to be good news. And it’s making me re-evaluate the Shell share price as a possible bargain.
Shell says the progress is down to “strong operational and financial delivery, combined with an improved macroeconomic outlook.” The latter part of that looks to be essentially the price of oil. From plunging below $20 at the start of the pandemic crash, a barrel is now fetching more than $70.
The strong recovery, amid growing pressure on the fossil fuel industry, surprised me. And I can’t help wondering if it surprised the big oil companies too. In the previous oil price crisis, Shell’s dividend didn’t waver, as the company could see an end to the crunch. But this time, the dividend was quick to tumble.
Shell share price attractive now?
What does this all mean going forward? We’re firmly on the road to a transition in our use of energy sources. BP took the opportunity last year to announce its plans for achieving net zero by 2050 or sooner. Shell might have been a bit less vocal about it, but it has similar plans, “to become a net-zero emissions energy business by 2050.”
But investors don’t yet appear to be convinced by the story. The Shell share price has barely moved in 2021, and it’s still down around 45% over the past two years. A few years ago, I’d have seen Shell as a sure-fire long-term buy. It did, after all, offer one of the FTSE 100‘s most reliable dividends. But now?
One problem for me is that we don’t yet know what the new shareholder distribution plan will be. For that, it sounds like we’ll have to wait for Q2 results, due on 29 July. I’ll decide whether to put Shell on my shortlist when I see that… and depending on what Shell’s debt targets actually are.
