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Shell, BP hold lure of higher payouts after Brexit hurts pound

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The British pound's slump to a 30-year low is handing a windfall to UK-based shareholders of Royal Dutch Shell Plc and BP Plc.

[LONDON] The British pound's slump to a 30-year low is handing a windfall to UK-based shareholders of Royal Dutch Shell Plc and BP Plc.

The currency's decline means the two oil companies are making higher payouts to UK investors when they distribute their dollar dividends in pounds. Shell and BP have pledged to prioritize defending their dividends through oil's biggest downturn in a generation.

The companies have maintained their payouts for the past two years and shareholders who have stayed invested through crude's slump are likely to get additional cash in the UK currency as the pound remains weak following Britain's June 23 decision to exit the European Union. The potential for higher cash payouts is driving up the companies' London-listed shares. US investors get no benefit from the currency's more than 17 percent slide against the dollar in the period, which makes the pound the worst performer among major currencies.

"In dollar terms the dividend has been flat, but in sterling terms the dividend is up quite a bit," said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd, which owns shares in both Shell and BP. "It's a fantastic time to be based in the UK, being shareholders in these two companies and taking the additional cash."

Shell is scheduled to announce it's third-quarter dividend in dollars on Nov 1, before setting the pound exchange rate on Dec 2 and making the payment on Dec 16, according to its website. BP will announce the same day as Shell, convert to the UK currency in early December and pay on the same day as Shell.

The value of Shell's 47 cents a share second-quarter dividend announced on July 28 has increased by about 8.6 per cent from the almost 36 pence it was worth at that time to the equivalent of more than 38 pence. The value of BP's 10 cents a share payout has also increased more than 8 per cent in the period.

Shell is likely to pay about US$15 billion in dividends this year, higher than last year's US$12 billion following the purchase of BG Group Plc in February, chief financial officer Simon Henry said in June. BP has paid about US$6 billion a year since 2012, according to Liberium Capital Ltd.

Together with oil's rise above US$50 a barrel, the lure of extra cash has drawn investors to Shell and BP's London-listed shares, Mr Armstrong said.

Shell's B shares, the most widely traded, have increased 17 per cent in London since the Brexit vote compared with a 5 per cent gain for the company's American depositary receipts in New York. BP's London shares have surged 24 per cent compared with a 9 per cent gain for the US stock. 

Shares of European rival Total SA have increased 7 per cent in Paris during the period. In New York, Exxon Mobil Corp has dropped 2.2 per cent while Chevron Corp gained 1 per cent.

About 41 per cent of Shell's B shares holders are based in Britain, according to data compiled by Bloomberg. BP has about 33 per cent of its shareholders in Britain, according to the data.

"The sterling is the reason why dividend hunters paid in the British pound are actively interested in these companies," said Jason Kenney, an Edinburgh-based analyst at Banco Santander SA. "It will be a Christmas present for UK dividend investors if the exchange rate remains the same."