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Royal Dutch Shell plc and BP Pay Higher Dividends: Here’s Why?

Britain’s decision to exit the European Union came as a shock for many. During the initial phase of Britain’s exit, the pound depreciated tremendously and questions were raised regarding how companies would operate. But now, a few months later, it seems that stakeholders of a few companies greatly benefitted from the move. 

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As mentioned above, the Brexit decision led to a significant decline of the pound against the dollar. Oil and gas companies such as the likes of Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) and BP plc. (ADR) (NYSE:BP) decided to capitalize on the decline by giving out lucrative bonuses to their shareholders. 

As reported by the Financial Times, both BP and Shell distributed around 500 million pounds in bonuses to their shareholders in the UK. The companies have a policy of setting their dividends in the dollar but have to pay them out in pounds. Thus the depreciation in the pound allowed them to pay dividends that were five times as high as last year. 

In recent times, oil and gas prices have taken a major downfall from their highs in the summer of 2014. Capital budget cuts, asset divestitures and employee layoffs have been a norm in the industry. Raising dividends at such a time is a great way to rejuvenate shareholders’ confidence and maintain optimism in the future. This, perhaps, can be a reason why the dividends paid out by the oil and gas companies exceeded their fellow counterparts. 

Shell, for instance, had the largest dividend payout in the FTSE 100. BP, another oil company, was not too far behind. Both the oil giants together constituted 12.5% of the UK’s blue chip index market by capitalization. As reported by the Financial Times, BP, in the third quarter, paid out some 250 pounds extra followed by Shell’s B shares which paid around 230 pounds.

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