Shell Stock Is Reeling From Dividend Cut & Looming Oil Disaster


Shell Stock Is Reeling From Dividend Cut & Looming Oil Disaster
  • Shell stock took a 13% spill Thursday after slashing its dividend.
  • Oil stocks face a monumental “crisis of uncertainty” in this recession.
  • But an even bigger existential threat to oil is looming ahead.

The oil price collapse just obliterated Shell’s dividend.

It’s alarming news for oil stock investors because even the 2018 and 2014 oil price crashes didn’t wipe out 66% of Shell Oil Company’s dividend.

Indeed, this is the first time Shell has cut its dividend since 1945:

The energy giant told its shareholders, including thousands of retail investors and pension funds, that it would be in their best interests for payouts to fall for the first time in almost 80 years. The payout is being cut by 66%, from $15bn last year to $5bn this year.

Shell is the U.S.-based subsidiary of Royal Dutch Shell, which until now, had the highest dividend-paying stock on the London FTSE-100.

Shell CEO Ben van Buerden warned the oil company faces a “crisis of uncertainty.”

In response, Shell stock (NYSE:RDS.A) crashed 13% in Thursday trading. British Petroleum (NYSE:BP) took a 6% spill, but Exxon Mobil (NYSE:XOM) managed to escape the worst of the fallout, with a 2.5% decline.

Exxon reports first-quarter earnings Friday. The Irving, Texas-based oil conglomerate is expected to post earnings of 4 cents per share on $53.5 billion in revenue. That would be a 15.8% decline over last year’s first-quarter revenues of $63.6 billion.

Monumental Oil Industry Uncertainty

In 2014, a combination of factors crashed the price of a barrel again.

The Federal Reserve began to unwind years of quantitative easing and strengthened the purchasing power of the dollar. Oil is generally priced in U.S. dollars, so a stronger dollar pushed down prices. Meanwhile, demand in China lagged, while increased oil production in the U.S., Canada, and Saudi Arabia created a supply glut, further crashing prices.

Oil stocks correlate tightly with the oil price, which makes the last month’s rally in energy somewhat baffling. When the barrel crashed in 2008, Shell stock followed along with it. It didn’t rally until prices picked up at the beginning of 2009.

The rise in debt-to-equity ratios for U.S. oil companies over the past decade is almost too extreme to believe. Smaller to mid-size companies in this sector face bankruptcy without massive government assistance during this crisis.

But long term valuations face an even more existential threat from the rise of alternative, clean, renewable energy sources like solar energy. Solar prices have collapsed parabolically since the 70s, sounding the death knell for fossil fuels.

solar is now cheaper than coal, which has traditionally been the cheapest available form of energy. Meanwhile, the likes of Elon Musk are creating an all-electric, battery-powered motor infrastructure to replace fossil-fuel-burning engines.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of The above should not be considered investment advice from The author holds no investment position in oil securities, nor the stocks mentioned.

This article was edited by Aaron Weaver.

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