Shell will increase its payout to investors by 4.8 percent in 2012 to $1.76 a share, according to the median estimate from 26 analysts compiled by Bloomberg. The Hague-based company gave about $8 billion in the first nine months of last year, and this week will probably make no change in the dividend for the fourth quarter of 2011, the data show.
Chief Executive Officer Peter Voser is on course to beat a target to increase cash flow from operations by more than 80 percent from 2009 to 2012, giving him room to return more money to investors. Shell rose 11 percent in London last year, compared with declines of 1.1 percent at BP Plc (BP/) and 0.4 percent at Total SA (FP) in Paris, its two closest European peers.
“The cash flow they’ve generated is way above their expectations,” said Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London who predicts an “incremental” increase in the dividend this year.
Brent oil averaged about $111 a barrel last year, compared with $80 in 2010, helping the company to extract more cash from new drilling and production projects.
Shell’s 12-month dividend yield, or the annual payout already made as a percentage of the share price, is 4.6 percent, lower than the 6.1 percent for Eni SpA of Italy and 5.7 percent for France’s Total, according to data compiled by Bloomberg. BP offers investors 3.8 percent.
Shell rose 0.5 percent to 2,240.5 pence in London. BP climbed 2.7 percent and Total gained 1.5 percent.
Eni and Total saw their dividend yields pushed up in part by concerns arising from Europe’s sovereign debt crisis, which depressed their shares, according to Jason Kenney, an analyst at Banco Santander SA. In contrast, Shell was considered a “less risky play,” he said.
Kim Blomley, a London-based spokesman at Shell, declined to comment.
Shell may even go as far as paying a special dividend or buying back shares to maximize shareholder value, according to analysts at Citigroup Inc.
“As key projects come onstream and capital expenditure stabilizes, free cash flow is set to increase structurally, underpinning significant potential for dividend growth,” Morgan Stanley said in a note. “We expect Shell management to start raising its dividend in the next three to nine months.”
In 2010, Shell paid the most in dividends among the companies trading on the London Stock Exchange’s main index. “One pound in seven pounds paid as dividends in the FTSE came from Shell,” Voser told shareholders in May.
Staffing constraints and multibillion-dollar projects already under way in North America, Asia and Australia will limit Shell’s ability to spend even more cash on developing projects, according to analysts.
“Massive free cash flow enables both higher dividends and higher capital expenditure,” Aymeric de-Villaret and Irene Himona, analysts at Societe Generale, said this month.
Shell is the middle of a $100 billion four-year investment plan through 2014 that’s aimed at reviving production with about 30 projects to start through 2020. The company will present its annual strategy along with fourth-quarter earnings on Feb. 2. It will be followed by BP on Feb. 7.
Excluding one-time items and inventory changes, Shell is expected to report earnings of $5.2 billion, according to the mean estimate of eight analysts surveyed by Bloomberg.
BP, its largest European rival, is forecast to report profit of $4.8 billion profit on the same basis, according to the survey. The London-based company, which resumed payouts in the fourth quarter of 2010 after suspending them because of the Gulf of Mexico spill, may increase its payout to 30 cents this year from 28 cents, according to the median forecast of 28 analysts.
Robert Wine, a company spokesman, said BP’s board sets the dividend in line with the company’s performance.
Shell expects to invest $30 billion over five years in oil and gas developments in Australia to supply liquefied natural gas to Asia. Shell is also working to secure U.S. government permits to drill off Alaska this year and is exploring in the Gulf of Mexico, Iraq and Malaysia as well as looking for shale gas in China.
Not every Shell follower agrees dividends will be raised. The company has enough spending to do that Voser may hold off on raising shareholder payments for the time being, said Kenney at Banco Santander in Edinburgh.
“The capital commitments are quite significant to be stepping up the capital dividend,” Kenney said by phone. “It’s a generous dividend already.”
Shell’s free-cash flow is estimated to rise to $17.4 billion this year from negative $5.5 billion in 2009, according to Bloomberg data.
“The cash flow has been strong,” Shell Chief Financial Officer Simon Henry told investors in October. “We need to get back to that structural positive free cash flow position from delivering the major projects before we look to grow the dividend.”
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