Royal Dutch Shell has been forced to slash its dividend for the first time since World War Two because of the global oil market collapsing due to the coronavirus outbreak.
Shell’s decision to reduce its dividend is devastating to investors across the country as so many people own its shares directly or through their pension as an important source of income.
AJ Bell’s Russ Mould said: “Investors risk putting money into the markets in order to stand a chance of achieving a better return than cash in the bank. While rates on cash savings accounts have been drifting down for a while, investment dividends were widely considered to be much more reliable.
“Sadly that is no longer the case given how more than 300 companies on the UK stock market have this year said they won’t be paying dividends for the time being or paying a much lower level than before. This figure includes 41 companies in the FTSE 100.
“Shell’s actions will affect so many people who are trying to earn a good return on their hard-earned savings. Approximately 160 retail funds and investment trusts in the UK have Shell as one of their top holdings, and many more overseas funds will hold the stock. There are also many pension funds on top who invest in the oil producer.
“Pensioners have relied on names such as Shell for a very long time in order to help pay the bills during retirement. They will be particularly devastated at the news that dividend cheques will be significantly smaller.
“While a cut is better than no dividend at all, many people thought Shell would never go down this path given its long track record of holding or raising the payment.
“Shell paid £11.6bn in dividends in 2019 which accounted for 15.4% of all FTSE 100 payments last year. Therefore its dividend is not only going to hurt its own shareholders but also people who own funds tracking the total return of the FTSE 100 index which includes dividend payments.
“Very weak oil prices have put management in the oil sector in a tricky place and they need to do everything they can to survive the crisis.
“Norway’s Equinor recently set the tone for the oil sector payouts by cutting its dividend. BP said it would continue paying as per normal for now, but Shell’s actions could lead to BP potentially reassessing its position in the near future.”