Analysts have been cautious on Royal Dutch Shell (LON:RDSA), despite the blue-chip group’s plans to lift its spending and payout to shareholders. Proactive Investors reports that Graham Spooner, investment research analyst at The Share Centre, had wondered about the deeper meanings behind the oil major’s new dividend confidence, especially with M&S (LON:MKS) and Vodafone (LON:VOD) having cut their payouts in recent weeks.
Shell’s share price fell in the previous session, shedding 0.55 percent to close at 2,459.00p, underperforming the broader UK market, with the FTSE 100 index finishing Tuesday’s trading 0.49 percent higher at 7,214.29 points. This morning, the oil major’s shares have been little changed, having inched 0.08 percent higher to 2,461.00p as of 08:13 BST, as compared with 0.02-percent rise in the Footsie.
Word of caution
Proactive Investors quoted The Share Centre’s Graham Spooner as commenting yesterday that “investors should be wary that any material fall in oil prices could once again raise questions” about Shell’s ability to maintain its payout to shareholders. The comments came after the company increased its organic free cash flow outlook to around $35 billion for 2025 at $60 per barrel, which, the oil major said, created the potential to distribute $125 billion or more to shareholders via dividends and share buybacks over the five-year period of 2021-2025.
“With thoughts on peak oil creeping ever closer and predictions of the oil price more difficult than who will be the next Prime Minister, what should investors take from Shell’s strategy update through to 2025?” Spooner pondered.
RBC weighs in
Proactive Investors also quoted RBC as adding that the distribution strategy was “dependent on a constructive oil price environment,” while adding that potential negative for the market of higher capex guidance was offset by operating cash flow guidance “materially ahead of market expectations, which paves the way for continued positivity should Shell convince the market on its plans”.
According to MarketBeat, the Anglo-Dutch oil major currently has a consensus ‘buy’ rating, while the average target on the Shell share price stands at 2,972.69p.