Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of oil titan Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US).
Dividends past
The table below shows Shell’s five-year earnings and dividend record.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 427¢ | 204¢ | 328¢ | 498¢ | 425¢ |
| Dividend per share | 160¢ | 168¢ | 168¢ | 168¢ | 172¢ |
| Dividend growth | +11.1% | +5.0% | 0.0% | 0.0% | +2.4% |
In total, Shell paid out 836¢ a share in dividends during the period, covered 2.25 times by total EPS of 1,882¢. The cover is very robust because the dividend has made little headway in recent years. In real terms — i.e. taking inflation into account — shareholders have seen the spending power of their income eroded since 2009.
However, at least Shell avoided a nominal dividend cut, which is more than can be said for many companies. In fact, Shell has a long history of never cutting its dividend; and, actually, of delivering income growth ahead of inflation across full economic cycles.
A reasonable dividend performance through a cyclical downturn for natural resources.
Dividends present
Shell has so far paid three quarterly dividends at 45¢ each for 2013. It has been the board’s practice to pay four equal dividends a year, suggesting a 45¢ fourth-quarter dividend when the company announces its annual results on 30 January — giving a full-year payout of 180¢ (up 4.7% on 2012).
Meanwhile, the analyst consensus forecast for EPS is 353¢ (down 17% on 2012), putting dividend cover at a lower — but still healthy — 1.96.
At a share price of 2,157p, Shell’s current-year dividend (around 113p sterling expected) represents a yield of 5.2%.
Dividends yet to come
Analysts see further mid-single-digit dividend growth for 2014, with a payout of 188¢ (47¢ per quarter) penciled in. They forecast a 10% bounce in EPS to 390¢ for 2014, bringing dividend cover back above two.
As you can see from the five-year history and forecasts, oil-company earnings can be highly volatile from year to year (indeed, from quarter to quarter). Over the long term, though, Shell’s earnings have supported good dividend growth, which, while not as volatile as earnings, does tend to flow faster and slower with the economic cycle.
Shareholders can be optimistic about modest dividend progress in the near term, with the prospect of periods of stronger growth at the punchier phases of the economic cycle.
