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Royal Dutch Shell PLC ADR Class A RDS.A

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Shell’s Strong Second Quarter Leads to Increase in Shareholder Returns, More Competitive Yield

Allen Good, CFA Sector Strategist

Analyst Note

| Allen Good, CFA |

Shell turned in a strong second-quarter results on the back of strengthening commodity prices. Adjusted earnings increased to $5.5 billion from $638 million the year before. Meanwhile, operating cash flow excluding a working capital headwind surged to $14.2 billion from $6.5 billion the year before, lifting organic free cash flow, excluding asset sale proceeds of $1.2 billion, to $8.4 billion from negative $254 million last year. The strong results for the last two quarters have reduced net debt to $65.7 billion. Although not quite at the prior target of $65 billion, Shell has moved to the next phase of its shareholder distribution program that calls for returning 20%-30% of operating cash flow while maintaining AA credit rating metrics, which means further net debt reduction in the coming quarters. As such, Shell has rebased the dividend to $0.24/share from $0.1735 previously, while keeping its 4% annual growth target in place. It will also repurchase $2 billion worth of shares by year-end. The step up in shareholder returns is important as Shell’s yield of 3.5% trails peers that did not cut the dividend last year. The new dividend implies a more competitive forward yield of 4.9%. This does not include the repurchases, but peers are likely to introduce repurchase programs as well given higher oil prices.

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Company Profile

Business Description

Royal Dutch Shell is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2020, it produced 1.8 million barrels of liquids and 9.2 billion cubic feet of natural gas per day. At year-end 2019, reserves stood at 9.0 billion barrels of oil equivalent, 52% of which consisted of liquids. Its production and reserves are in Europe, Asia, Oceania, Africa, and North and South America. The company operates refineries with capacity of 2.8 mmb/d located in the Americas, Asia, Africa, and Europe and sells 15 mtpa of chemicals. Its largest chemical plants, often integrated with its local refineries, are in Central Europe, China, Singapore, and North America.

Carel van Bylandtlaan 30
The Hague, 2596 HR, Netherlands
T +31 703779111
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 87,000


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