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The Shell share price jumps 4% after a 40% dividend hike!

Oil pipes in an oil field
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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.

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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.

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!

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Cliffdarcy has no position in any of the shares mentioned. 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.

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