The income part of my portfolio has been taking a hit this last month or so, there’s no getting around it. While I feel that share price declines because of Covid-19 are for the most part likely to bounce back, income is always less certain. So I was disappointed when at the end of last month Royal Dutch Shell (LSE: RDSB) said it would be cutting its dividend for the first time since the Second World War.
Not a short-term measure
The cut to the dividend of two-thirds came, of course, as oil and energy prices collapsed on the back of coronavirus and overcapacity. If this was the only problem, and I thought the reduced dividend would be short lived, I wouldn’t have too much concern. However Shell has indicated otherwise.
CEO Ben van Beurden has said that the reduction is in fact part of a “reset” of the company’s dividend policy. Not what we investors wanted to hear. What’s more, Beurden said this was just the early part of a “fundamental shift for Shell over the next 30 years”.
One thing I have always liked about Shell as an investment is the company’s adaptability. Specifically, they have been fairly adamant about the need to adapt as the world moves away from oil and fossil fuels and towards renewable energy sources.
I am of the opinion that a real, practical shift is a long way off yet, but perhaps we are witnessing the first fundamental shift in policy for an oil major.
That said, crude oil is of course, still Shell’s main business, and that won’t be changing anytime soon. Low oil and gas prices then, are what we really need to consider.
Beurden has warned “We do not expect a recovery in oil prices or demand for our products in the medium term”, and the International Energy Agency has said worldwide energy consumption could fall 6% this year.
Despite this however, I can’t help but feel there is a slight hint of panic in the air with regards to crude prices. As always, greed and fear drive prices far more than fundamentals, and I think the true weakness in the oil price market triggered a knock-on panic, particularly with paper sales (futures contracts on exchanges rather than physical crude oil itself).
OPEC is due to meet at the start of June to consider ways of “stabilising the world oil market” – a phrase that usually hints at production cuts from its members.
That said, things are fast becoming too uncertain for me in the oil market, at least in terms of fresh investments. I am certainly holding on to the oil stock I have, but I am curious to see how the next few months pan out before I put any more money in this sector.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Karl has shares in Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.