It is not quite true to say that the stock market is relying on the Royal Dutch Shell dividend, but since the oil company accounts for over a tenth of the total dividends paid by UK companies, a cut would be quite a shock. The shock would be terminal for Ben van Beurden, since the Shell CEO would have broken the promise made during the takeover of BG Group.
This is why Shell will find the $8bn needed to pay out on the capital enlarged by what Nick Butler of Kings College London describes as “an act of corporate obstinacy that is still destroying shareholder value”. However, “find” is not quite the same as “afford”, as Shell shares are signalling with a yield of 7 per cent, more than twice the market average, for a company that has not cut its dividend in over half a century.
The price is, in effect, anticipating the end of the oil age; that if Shell shells out $8bn every year, it will have to keep selling assets and eventually stop exploring, turning the shares into a high-risk annuity. This case assumes that for oil, $50 is the new $100, that alternative energy sources will displace it from more and more uses, and that pressure from environmentalists will do for oil what they have done for coal.
Well, maybe the oil price is in long-term decline. Fracking activity in America is now rising again, as the costs fall and drillers adjust to their newfound role as swing supplier. Yet if “peak oil” does turn out to be peak oil demand, rather than supply, as had been generally assumed, there is no sign of it.
OECD countries have been using less, but global oil consumption rose by 12 per cent in the 10 years to 2015, despite costing over $100 towards the end of the decade. Today’s lower price is having the entirely predictable effect on consumption in the west, with Americans driving like never before. The glut looks temporary.
All the oil majors became fat and inefficient in the boom years. As BP demonstrated after the Macondo disaster, they have valuable assets that they hardly know they possess. They are also learning to make money from selling their products rather than finding more crude. We are nearly all shareholders in Shell, some of us more directly than others, but that dividend looks sustainable, and not just because Mr van Beurden wants to keep his job.
Dear Apple: don’t abandon jack
Hutber’s Law, named after a distinguished City editor of the Sunday Telegraph, states that improvement means deterioration. If the scuttlebutt is to be believed, Apple may be about to demonstrate the law’s truth, by launching an iphone without a headphone jack.
You can see why purists dislike wires, which tangle however carefully they are put away, and pull out of your ears whenever you move. How much more modern to have a wireless connection, even if the earpiece is lumpier – oh, and you need two of them.
The headphone jack is an all-too-rare example of the industry managing to agree on a standard across all brands, even extending it to in-flight entertainment. The headphones themselves cost pennies, so it hardly matters when they break. An expensive little wireless headset will inevitably get lost when you need it. Unlike a physical wire, the radio connection is vulnerable to interference, or even hacking. Memo to Apple: don’t be silly.
Now we’ll never know
Rodney Leach was that rarity among the City’s elite, a man who enjoyed talking to journalists. His views, delivered with a dreadful clarity, were delivered with a twinkle in his eye, as if the most serious subject was also slightly ridiculous. Even when disagreeing it was impossible not to like him. He was cruelly struck down in April and died last weekend. Yet even now, here is something he would have enjoyed – the arch-sceptic on the European Union had not said which way he would vote in the referendum. The mixture of logic and pragmatism that made him such a powerful figure were pulling him in opposite directions, and now we will never know which side would have won.
This is my FT column from Saturday