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Shell to hike dividend, spending after it wraps up $25B buyback program

Despite ongoing energy price volatility, Anglo-Dutch oil major Royal Dutch Shell PLC intends to hike spending and shareholder dividends as it nears the completion of its massive share buyback program.

Shell said June 4 during its Management Day that it hopes to complete the $25 billion buyback plan by the end of 2020. It announced the restart of the share repurchase program at the end of 2017, as oil prices started to recover after three years of malaise. In 2015, Shell introduced a scrip dividend, giving shareholders the option to be paid in either shares or cash, as it faced sliding oil prices and sought to buy BG Group PLC.

By the end of 2020, Shell's organic free cash flow is likely to rise to $28 billion to $33 billion, assuming a crude oil price of $60 per barrel in 2016 terms. As a result, the major is anticipated to distribute $125 billion or more to shareholders in dividends and share buybacks from 2021-2025. This compares to about $90 billion in shareholder distributions from 2016-2020.

"Shell expects to increase the dividend per share when there is line of sight to the completion of the $25 billion share buyback program," the company said in a June 4 news release.

Shell, which recently completed an aggressive $30 billion divestment program of noncore assets has been known for paying a solid but steady dividend in the last few years. The oil major last increased its dividend in the first quarter of 2014, to 47 cents per share, where it has remained since then.

The company plans to spend, on average, $30 billion per year from 2021-2025, with a ceiling of $32 billion a year. Of the $30 billion, about $20 billion per year will be needed to sustain its portfolio and to deliver cash flows from operations at the 2020 levels.

"So the outlook is mostly based on organic growth. The $30 billion average cash capex only includes a modest inorganic spend of around $1 billion a year," Shell CEO Ben van Beurden said during a June 4 call.

In the past few years, Shell has maintained strict capital expenditures at the lower end of its range of $25 billion to $30 billion. However, Shell's spending is expected to rise in the coming years, as the company focuses on building out its cleaner energy business, including power, gas and renewables.

Setting short-term emissions reduction targets in March, starting in 2020, the Anglo-Dutch major will invest $1 billion to $2 billion annually into new energies, with the intent of becoming the largest global power company by 2035.

In late 2018, Shell said it would link its performance on emissions reductions targets to executive pay, and the company ended its membership in the American Fuel & Petrochemical Manufacturers trade association over differences on climate change issues.

At 8:45 a.m. ET, Shell's B shares on the London Stock Exchange, the most widely traded, were down 0.82% to 2,467 pence.