The Royal Dutch Shell oil company cut its dividend on Thursday for the first time since World War II, after registering a contraction in its business due to an unprecedented drop in oil demand due to the coronavirus pandemic.
Shell has also suspended the next tranche of its share buyback program and reported that it is cutting oil and gas production by almost a quarter after its net profit fell by almost half in the first three months of 2020.
Shell shares listed in London plunged 7% at 0753 GMT, a much larger drop than that of rival BP, which was down 2.2%.
For years Shell has prided itself on never having cut its dividends since the 1940s, not even during the deep slumps in the oil market of the 1980s.
However, some investors have asked major oil companies to break what had become a sort of taboo in the sector and to consider cutting dividends, rather than taking on more debt to keep up payments.
“Given the risk of a prolonged period of economic uncertainty, weakening commodity prices, increased volatility and uncertain prospects for demand, the board of directors considers it unwise to maintain the current level of distribution (dividend) to shareholders, “said Chad Holliday, president of Shell.
Holliday added that the cut is part of a long-term “readjustment” of the company’s dividend policy.
Shell said it will cut its quarterly dividend by two-thirds to 16 cents a share, from the 47 cents it paid each quarter in 2019. If maintained for this year, Shell would save some $10 billion.
Shell is the first of five so-called “Oil Majors” to cut the dividend due to the consequences of the coronavirus crisis. BP and Exxon Mobil have said they will keep theirs for the first quarter, while Total and Chevron have yet to release their quarterly results.