British oil major Shell announced plans on Tuesday to increase shareholder distributions and cut expenditures as it sharpens its focus on liquefied natural gas (LNG).
The company said it would raise shareholder payouts to 40-50% of cash flow from operations, up from the previous range of 30-40%.
Progressive dividend growth of 4% per year will continue, with a target of increasing free cash flow per share by over 10% annually through 2030.
In a bid to enhance efficiency, Shell will lower its annual spending to $20-22 billion through 2028.
This marks a reduction from its earlier spending target of $22-25 billion for 2024 and 2025, first set in 2023.
Additionally, Shell aims to deepen cost reductions, increasing its structural cost-cutting goal from $2-3 billion by the end of 2024 to a cumulative $5-7 billion by the end of 2028 compared to 2022 levels.
Shell’s share price was higher by close to 2% on Tuesday after the announcement.
LNG focus and steady oil production
As the world’s largest LNG trader, Shell plans to expand output across its upstream and integrated gas businesses by 1% annually through 2030.
It expects LNG sales to rise by 4-5% per year in the same period.
Meanwhile, the company will maintain its liquid production at 1.4 million barrels per day until the end of the decade.
Despite the growing emphasis on LNG, Shell will dedicate only 10% of its capital spending to low-carbon businesses by 2030.
CEO Wael Sawan emphasized Shell’s strategic direction, stating, “We want to become the world’s leading integrated gas and LNG business and the most customer-focused energy marketer and trader, while sustaining a material level of liquids production.”
Shell stock performance and analyst outlook
Shell’s stock performance has remained tepid, with shares gaining just over 4% in the past year.
However, long-term investors have seen strong returns, with Shell shares rising nearly 115% over the last five years, bolstered by dividends.
The company faced turbulence during the COVID-19 pandemic, with oil prices plummeting below $30 per barrel in early 2020.
A subsequent energy price surge following Russia’s invasion of Ukraine provided a significant boost, but oil prices have since retreated to around $70 per barrel due to sluggish global economic growth and increased supply.
Despite lower LNG margins contributing to a 16% decline in full-year 2024 profits to $23.7 billion, Shell remains committed to shareholder returns.
It recently announced a 4% increase in its quarterly dividend and a $3.5 billion share buyback program.
Analysts remain optimistic, with 19 forecasting an 18% upside in Shell’s stock price to 3,247p from its current level of 2,765p.
Additionally, 23 analysts rate Shell as a Strong Buy, with no recommendations to sell, signalling continued confidence in the company’s long-term strategy.
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