Shell expected to maintain top dividend yield

Royal Dutch Shell is expected to maintain its status as the UK-listed company with the highest dividend yield this year as it seeks to finalise its £47bn takeover of smaller rival BG Group, according to Markit, the data provider.

Some investors fear the blockbuster deal unveiled last Wednesday could have negative repercussions for Shell's dividend, partly because the Anglo-Dutch group is paying a 50 per cent premium for BG and the transaction assumes a major recovery in oil prices.

Markit said in a report published on Monday, the sheer scale of the enlarged Shell-BG Group - it is predicted to generate almost 10 per cent of FTSE 100 companies' dividends - meant investors should consider how they spread income risk across their shareholdings.

"The weighting of the proposed new entity in the FTSE 100 highlights the concentration risk when it comes to dividend income from UK-listed companies," said Kevin Soyer, dividend analyst at Markit.

Markit's report said holders of Shell's so-called A class shares can expect a 6.2 per cent yield this year - which would make them the top performer among leading income providers in the FTSE 350 index. The combined payout across Shell's A and B class shares is estimated to be £8bn in 2015.

The oil and gas sector is due to be the biggest source of dividends this year by FTSE 350 companies, contributing £14.2bn, although Markit warned the near 50 per cent collapse in crude prices since last summer posed a significant risk to payouts.

Mr Soyer welcomed last week's announcement by Shell that it intended to issue a dividend of $1.88 per share this year and at least match that in 2016.

He predicted the deal would add marginally to Shell's weighting of close to 9 per cent of all dividends by FTSE 100 companies, even though BG cut its payout in February as it swung to a pre-tax loss for 2014 amid large asset writedowns.

Robert Davies, manager at Maven Capital Partners, who supervises a tracker fund, said there was some risk to Shell's dividend that arose from the BG deal.

"I'm a bit nervous," he said. "There's an assumption in all this that the oil price is going to go up."

Shell's long-term oil price assumptions for the deal involve a range of $70 to $110 per barrel for Brent crude, compared with $58 on Friday.

Some analysts have supported Shell's assertion that the integration of BG, which ended last year with net debt of $12bn, would not weaken its ability to pay dividends.

Shell is one of several FTSE 100 companies likely to benefit this year from the affect of the strengthening dollar against other currencies.

Markit said this dollar exposure would help support a 7 per cent rise in ordinary dividend payouts by FTSE 350 companies this year, to £79.3bn. Payouts including special dividends are expected to total £86.3bn.

Banks and healthcare companies are due to be the largest contributors of dividends by FTSE 350 companies after the oil and gas sector.

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