By Rupert Hargreaves – Wednesday, 15 April, 2015
Shell’s (LSE: RDSB) merger with BG Group will create a Footsie titan. The enlarged group will make up around 10% of the index, and provide 10% of the index’s dividends.
And at present levels the company supports a dividend yield of 6.2%, a yield that’s hard to turn down.
However, some analysts have begun to voice their concerns about the sustainability of Shell’s dividend payout after it acquires BG. Should dividend investors be worried?
Oil trade
The success or failure of Shell’s multi-billion dollar purchase of BG hinges on long-term oil price assumptions.
For example, if the price of oil returns to $90/bbl then the deal will yield terrific results for Shell and the company’s shareholders. If the price of oil rises to $70/bbl, the deal becomes manageable. Nevertheless, if the price of oil continues to languish at around $50/bbl then this deal could come back to haunt Shell.
You see, the crowning jewels in BG’s empire are the company’s oil & gas assets in Brazil. When combined, BG and Shell will be the largest foreign oil company in oil-rich Brazil, although most of BG’s Brazilian assets aren’t profitable with oil trading at $50/bbl.
But Shell’s analysts believe that the price of oil will recover to $90/bbl, which is why the company has decided to do this deal now. Based on these assumptions, analysts believe that the deal will be strongly earnings-accretive from 2018 and the dividend will be safe.
Balance sheet risk
Concerns have also been raised about the state of Shell’s balance sheet after this deal completes. Indeed, Shell is paying a 50% premium for its smaller peer, a total of £55bn including debt. Many analysts have stated that this slug of debt will put pressure on Shell’s balance sheet.
That being said, Shell’s management has stated that the company is planning to shed around $30bn of asset over the next few years to help fund the deal. Private equity buyers are already swarming around the company for its unwanted assets, so hitting the $30bn target shouldn’t be an issue.
Additionally, Shell believes that it can deliver $2.5bn in annual savings once the deal completes. These savings should only improve the enlarged company’s financial flexibility.
How safe is that dividend?
So, is Shell’s prized dividend at risk following the BG deal?
Well, it really depends on the price of oil. If oil returns to $90/bbl then the dividend will be safe, but oil remains depressed then Shell might have to rethink its dividend policy.
This website and sisters royaldutchshellplc.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.
Royal Dutch Shell conspired directly with Hitler, financed the Nazi Party, was anti-Semitic and sold out its own Dutch Jewish employees to the Nazis. Shell had a close relationship with the Nazis during and after the reign of Sir Henri Deterding, an ardent Nazi, and the founder and decades long leader of the Royal Dutch Shell Group. His burial ceremony, which had all the trappings of a state funeral, was held at his private estate in Mecklenburg, Germany. The spectacle (photographs below) included a funeral procession led by a horse drawn funeral hearse with senior Nazis officials and senior Royal Dutch Shell directors in attendance, Nazi salutes at the graveside, swastika banners on display and wreaths and personal tributes from Adolf Hitler and Reichsmarschall, Hermann Goring. Deterding was an honored associate and supporter of Hitler and a personal friend of Goring.
Deterding was the guest of Hitler during a four day summit meeting at Berchtesgaden. Sir Henri and Hitler both had ambitions on Russian oil fields. Only an honored personal guest would be rewarded with a private four day meeting at Hitler’s mountain top retreat.
IN JULY 2007, MR BILL CAMPBELL (ABOVE, A RETIRED GROUP AUDITOR OF SHELL INTERNATIONAL SENT AN EMAIL TO EVERY UK MP AND MEMBER OF THE HOUSE OF LORDS: 
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A head-cut image of Alfred Donovan (now deceased) appears courtesy of The Wall Street Journal.
