Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

It's payback time for investors in Royal Dutch Shell Plc. Shareholders in the Anglo-Dutch oil company have had to endure receiving their dividends partly in stock throughout the industry price slump. This mild austerity is now ending. Shell is signalling that when it comes to spending its cash, shareholders will get first dibs.

The move to a full cash dividend, announced on Tuesday, is only just affordable. Investors should feel lucky the dividend wasn't cut. In the 12 months to Sept. 30, organic free cash flow of $17 billion wouldn't have covered the full dividend bill plus interest on Shell's $68 billion net debt.

Not in the Scrip
Shell's shares have underperformed while it has been paying part of its dividend in shares
Source: Bloomberg

Oil prices are about 20 percent higher now and, with further progress on cost-cutting and new projects landing, Shell reckons free cash flow is on course to be $25-$30 billion by 2020 -- nearly double the annual dividend cost. This assumes the oil price holds at or above $60 per barrel.

The question remains whether Shell needs to spend spare cash on anything else. It still has too much debt, for example. Gearing is at 25 percent, against a target of 20 percent. Still, disposals ought to be able to deliver that goal.

What about investing to grow and transform the business? Oil and gas is capital intensive. It's also a slowly dying industry and Shell needs to shift its portfolio more aggressively to clean energy. New energy is a fraction of the company's portfolio.

Shell has committed to cut the carbon footprint on its energy products -- including their use by customers -- by 20 percent by 2035 and by half by 2050. It's a worthy but very long-term goal, that's going to be achieved through a combination of measures from carbon offset to making "climate competitive" investments in future.

For now, investment in new energy will be just $1 to $2 billion annually. For a company with $287 billion of capital employed, that's tiny, as analysts at ING note. Shell might be able to move faster but the pace appears to be constrained by what it feels delivers acceptable returns for the shareholder.

Indeed, Shell's free cash flow projection is helped by the fact that it has imposed a ceiling on capital investment. The company will stick to this even if oil prices rise, using any surplus cash for debt reduction or a massive $25 billion share buyback program.

The Return to Returns
Shell aspires to more than double its return on capital employed in the next four years
Source: Company presentation

If the oil price sinks, it's capital investment that gets cut back. Heads shareholders win, tails, investment loses.

Shell's investor-friendly moves are partly about atoning for the past and undoing the dilution inflicted by share issuance for the dividend and the purchase of BG Group in 2016. Meanwhile, Shell claims an industry first in its carbon commitments. If only it could rush to shift to renewables as quickly as it's dashing to please its owners.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at

To contact the editor responsible for this story:
James Boxell at