Another keystone of the Plan is maintaining a strong balance sheet. One important metric to watch is "gearing," or a measure of corporate debt as a function of capital employed. In Shell's case, a stated Plan objective is limiting gearing to between 10 and 30 percent.
At the end of the second quarter, gearing was 10.3 percent, up slightly from the first quarter but well within boundaries.
Other balance sheet metrics finds Shell owning outstanding books: debt-to-equity, price-to-book, and liquidity measures are excellent.
Bottom Line: Balance sheet maintenance is not a problem for Shell.
Royal Dutch Shell management has promised to link the cash dividend to results. Thus far, they have delivered.
The company confirmed recent expectations for a five percent hike in the third quarter payout. The new, annualized dividend yield is 5.6 percent. The resulting yield is top-tier, even besting many high-yield bonds.
Meanwhile, Standard & Poor's offers Shell a strong "AA" credit rating.
Readers may note that Shell has a long history of raising the dividend, but fails to make many popular dividend databases. As a result of the 2005 merger between Royal Dutch Petroleum and Shell Transport and Trading, the payout was converted from being paid in Euros to Dollars, thus requiring manual updates to acknowledge the corporate and accounting changes. Nevertheless, the dividend has been increasing for at least twenty years.
Here's a helpful chart from the earnings presentation that outlines Shell Oil's source and application of operating funds for the past 12 months:
(click to enlarge)
Bottom Line: The dividend is safe, and further improvement in cash flows will result in additional boosts to the already generous cash payout.
By all accounts, Royal Dutch Shell experienced and acknowledged a disappointing 2013 second quarter. However, investors taking a longer view should focus upon the company management fulfilling the 2012-2015 Plan.
In this respect, calendar year 2013 Operating Cash Flows have been adequate, but below those for 2012. This is troublesome. Such continued performance will begin to push the likelihood of management being unable to attain the upper end four-year target. Yet the higher target should remain the corporate objective given crude oil prices have played out towards the high end of the Plan's price range assumptions.
Capital spend, balance sheet maintenance, and dividends are all tracked per Plan.
Going forward, I intend to watch events in three areas that may prove distracting, directly or indirectly, to overall Plan objectives: the deterioration of operational and political conditions in Nigeria; generally weak North America E&P business results, including significant impairment charges for various shale oil plays; and the final regulatory and operational disposition of Shell's Arctic exploration efforts.
Please do your own due diligence before entering into any investment. Good luck with all your 2013 investments.