Shell to turn off scrip dividend 'sooner rather than later', Barclays says

Analysts at Barclays reaffirmed their positive stance on shares of Royal Dutch Shell pointing to management's ability to 're-set' the outfit's cash break-even level lower, the likelihood that it would soon be able to scrap its scrip dividend and the 6% dividend yield on offer.

The key, they explained, was management's decision to avail themselves of lower capital expenditures, reduced operating expenditures, divestments and new project start-ups to cut the company's cashflow break-even level of oil to $50 a barrel.

That was so even after paying out a full cash dividend.

Over the past four years, Shell had cut the oil price needed to cover both capex and payouts by nearly $80 a barrel, Barclays explained.

Yes, at 25% gearing remained above the firm's targetted 20%.

However, Barclays judged that: "continued strong organic cashflow and further divestment proceeds should give management the required line of sight to lower gearing that it needs to turn off the optional scrip dividend sooner rather than later."

In fact, that would likely be the focus of Shell's capital markets day on 28 November, they said.

The market would also be keen for further clarity on the company's ability to offer a "world class investment case", they said.

On the basis of all of the above, Barclays reiterated its 'overweight' recommendation and 2850p target price for the shares.