Integrated energy behemoth, Royal Dutch Shell plc (RDS.A) announced that it has stopped the scrip dividend program, in which company stock was offered as dividend instead of cash. This decision would be effective from the current quarter interim dividend payment.
The company intends to increase focus on share buybacks and cash payments. This reflects that the company is confident of its cash flow generation. Shell believes that by 2015, the share buybacks would offset the share dilution that has resulted from the company’s scrip dividend program.
Moreover, the move would put an end to Shell’s dual share structure, which resulted in increased costs for the company according to the Dutch tax rule, whereby the additional buybacks were taxed as they were considered a type of payout.
Shell mentioned that it has returned $16 billion to shareholders through share buybacks and dividend payments in 2013. In the first quarter, Shell increased its dividend as well. These measures indicate the company’s commitment to return value to stockholders.
Shell is one of the major integrated energy firms in the world with a large and diversified portfolio of development projects that offer attractive long-term opportunities. The company is now diverting capital toward exploration activities in liquid-rich shale resources and tight gas acreages, which is a positive. However, factors such as weak downstream operations, increased capital spending and high exposure to natural gas are challenges to the company.
Shell currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked stocks from the broader energy sector such as Ultra Petroleum Corp. (UPL), Matrix Service Company (MTRX) and Encana Corp. (ECA). All these stocks sport a Zacks Rank #1 (Strong Buy).
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