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Tuesday 20 August 2019

Shell pledge to restore cash dividend boosts London market

The FTSE 100 Index closed up 76.75 points to 7460.65.

BG Group takeover
BG Group takeover

By Ben Woods, Press Association Chief City Correspondent

Oil major Royal Dutch Shell boosted London’s top tier after investors snapped up stock in the energy giant as it moved to restore a cash dividend following a two-year pause.

The FTSE 100 Index closed up 76.75 points to 7460.65, with Royal Dutch Shell B among the biggest risers, jumping more than 3% or 87.5p to 2,448.5p.

The shares surge was prompted by the firm cancelling its scrip dividend programme in place since 2015, which gave shareholders the option to receive payments in shares or cash as it battled tough market conditions and a plunge in oil prices sparked by lower demand and a glut in supply.

The changes – which reinstate a full cash payout – will come into effect for the fourth quarter interim dividend, the amount of which will be announced at the start of February.

Shell also increased its cash generation forecast – from $25 billion to $30 billion by 2020 – as Brent crude prices continue to hold above $60 per barrel, having fallen as low as $27.26 in January 2016.

Across Europe, Germany’s Dax finished higher, up 0.6%, and the Cac 40 in France was up 0.5%.

David Madden, market analyst at CMC Markets UK, said: “The FTSE 100 is the standout performer in Europe today and the bullish move is being underpinned by the energy sector.

“Royal Dutch Shell has announced its plans to return to paying an all-cash dividend. The oil titan is still planning on paying down debt, but the scrapping of the scrip dividend is a sign of how strong their cash-flow position is.

“Traders are viewing the move as a sign the major oil company is returning to bullish days of before the downturn in the oil market.”

The London market was also given a leg up by the weak pound, with sterling sliding 0.6% against the US dollar to 1.323 after Bank of England governor Mark Carney warned that a sharp disorderly Brexit could hit households and businesses.

The UK currency was 0.4% lower versus the euro at 1.11.

Blue-chip stocks, which report in US dollars or euros, get a boost on the FTSE 100 Index when the pound falls because their earnings benefit from a more favourable currency translation.

Mr Carney’s comments came as he revealed Britain’s biggest lenders could withstand a “disorderly” Brexit and still keep lending.

The Bank’s stress tests found the UK’s banking system could cope with an extreme economic stress scenario, equivalent to the worst possible outcome of the UK’s departure from the EU.

All seven of the lenders tested were given a clean bill of health and will not have to bolster their financial strength for the first time since the annual health check on the sector was launched in 2014.

Shares in Barclays closed down 0.2p to 187.4p, Lloyds Banking Group was off 0.7p at 64.8p, while HSBC was up 9.7p to 745.3p, and Royal Bank of Scotland rose 3.6p to 271.2p.

In the oil market, Brent crude was down 0.4% at $63.47, as traders looked ahead nervously to Thursday’s Opec meeting in Vienna, which could result in an agreement between the world’s largest producers to extend output caps.

In UK stocks, Ocado was the best performer on the second tier – surging more than 20% – after it announced a long-awaited international partnership, signing a deal with French supermarket giant Groupe Casino.

Ocado said the deal will see it construct an automated warehouse, or customer fulfilment centre, that will serve the Greater Paris area, as well as the Normandie and Hauts de France regions.

Groupe Casino will pay Ocado upfront and ongoing fees as part of the deal.

Shares were up 53.4p to 309.6p.

The biggest risers on the FTSE 100 Index were Royal Dutch Shell A up 92.5p to 2,408p, Worldpay up 16.4p to 432.6p, Royal Dutch Shell B up 87.5p to 2,448.5p, Babcock International up 21p to 685p.

The biggest fallers were Convatec down 4.8p to 190p, Persimmon down 49p to 2,540p, Anglo American down 25p to 1,405p, Glencore down 6p to 352p.

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