Is Shell A DRIP Share For The Long Term?

Published in Investing on 17 December 2012

How have Shell (LSE: RDSB) investors fared through reinvesting their dividends?

Some of the largest companies in the FTSE 100 (UKX) run schemes where investors can take dividends in the form of shares instead of cash. In a Dividend Reinvestment Plan (DRIP), shares are bought with the dividend cash. In a scrip scheme, new shares are issued in lieu of payment.

If a company with a DRIP/scrip scheme pays a large and increasing dividend, such reinvestment can quickly compound the size of your shareholding upwards.

Using dividend data from Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US), you can see how the income produced by company has made dedicated shareholders richer.

Previously incorporated as two separate companies (Royal Dutch Petroleum and Shell Transport & Trading), Royal Dutch Shell was formed from a merger of the two in 2005.

Shares ownedYearTotal dividend payments (US$)Purchased sharesNew holding
100020061.28371037
103720071.44391076
107620081.6521128
112820091.68741202
120220101.68661268
126820111.68611329
13292012*0.86331362

* Shell has paid two of its four scheduled dividends for 2012. Next dividend of $0.43 is to be paid on Thursday, December 20th.

My figures are based on a shareholder that bought 1,000 Shell shares in 2006. Shell's scrip dividend plan began in Q3 2010. For the previous years, I've used historic data to indicate how a dividend reinvestor could have accumulated Shell stock.

With dividends reinvested in Shell shares, those 1,000 shares bought in 2006 at 1,954p would have grown to 1,362 shares today.

If an investor was prepared to forego income, then an outlay of £19,540 on the shares just over six years ago would be worth £29,964 today.

Shell has been steadily increasing its dividend in those six years. The full payout for 2006 was $1.27 per share. For this full year, dividends are expected to total $1.76 per share. That's a 38.6% increase.

With an expected yield for 2013 of 5.1%, £19,540 invested in Shell six years ago (and reinvested) now brings an expected income of £1,528 per annum.

Few shares demonstrate a company's ability to pay its shareholders better than Shell. In 2011, the Capita Dividend Monitor report confirmed that Shell paid out more cash to its shareholders than any other FTSE 100 company. In fact, the total payout from Shell is 1/8th of the aggregate payout from the entire FTSE 100.

Shell dividend reinvestors have capitalised on periods when the share price fell by accumulating shares cheaply. The company is a great example of the power of dividend reinvestment.

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> David does not own shares in Royal Dutch Shell or any other company mentioned.

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breelander 18 Dec 2012 , 10:53am

For the previous years, I've used historic data to indicate how a dividend reinvestor could have accumulated Shell stock.

There was, in fact, an older DRIP scheme available for the Shell Transport and Trading shares. This was replaced by the current scheme.

There is a minor problem with the current scheme for UK holders of RDSB shares in that all shares issued are RDSA, regardless of whether you hold RDSB or RDSA. These RDSA shares are subject to Dutch witholding tax on cash dividends, but not on DRIP. Only a problem if you intend to switch back to receiving cash dividends at some time in the future.

Dutch tax will generally be withheld (currently at a rate of 15 per cent.) from cash dividends paid on A Shares, but this charge will not apply to the issue of new A Shares under the Programme
http://s07.static-shell.com/content/dam/shell/static/investor/downloads/scrip/scrip-qanda-certificatesandcrest.pdf

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