Dividend policy

Shell Dividend Policy

There are two program offered by Shell to its shareholders as an alternative to pay dividends which are Scrip dividend program and share buyback program. Scrip Dividend Program enables shareholders to increase their shareholding by choosing to receive new shares instead of cash dividends while share buyback program is repurchased the share from shareholders instead of giving the dividend and all of the shares purchased under the buyback program were cancelled. The share buyback program was commenced to offset the dilution created by the issuance of shares under Shell Scrip Dividend Program. Under Scrip dividend program, shell paid out 104.6 million shares to shareholders thus to offset the dilution Shell repurchased 34.4 million shares. Shell sets its dividend policy based on Shells underlying earnings and cash flow. Therefore in setting the dividend, the Board of Directors looks at a range of factors which includes the macro environment, the current balance sheet and also future investment plans. In the fourth quarter of 2011, an interim dividend is US$0.42 per share, equal to the US dollar dividend for the same quarter of 2010. In 2011, Shell paid out dividends US$ 10,457 million to the shareholders, the total of shareholder return is 17.1%, there is an increase of only 0.1 % from 2010 (Shell, 2012). Regardless to the policy, Shell has followed Stable dollar dividend per share payout (Keown, et al., 2005). This policy maintains a relatively stable dollar dividend over time. An increase in the dollar dividend usually does not occur until management is convinced that the higher dividend level can be maintained in the future. Management also will not reduce until the evidence clearly indicates that a continuation of the present dividend cannot be supported. In a separated study (Cited in Keown, et al., 2005), Smith explained that dividend stability is essential to minimize the effect of other type company reversals, and the impact of short term fluctuations in earnings. One of the facts is that before 2009, Shells dividend payout ratio largely remained below 50%, until it rose to 75% on a temporary dip in earnings in 2009 (YahooFinance, 2009). A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short term fluctuations in earnings.

ExxonMobil
Dividend policy of ExxonMobil is at discretion of the Board of Directors. However, ExxonMobil endeavors to pay a consistent, growing dividend. Exxon has three alternatives ways for shareholder to receive their dividends paid. They are: Direct deposit, check and dividend reinvestment. In Direct Deposit, the dividend payment is transferred by electronic funds on the dividend payable date directly to shareholders checking or savings account. With check, shareholder may have its dividend checks sent directly to their residence or bank. While in dividend reinvestment, shareholder may automatically reinvest all or part of their dividends in additional shares of ExxonMobil stock through Computershare Investment Plan for ExxonMobil common stock. ExxonMobil has paid uninterrupted dividend on its common stock since 1882 and increased payments to common shareholder every year for 28 years (Exxon, 2011). Based on S&Ps index services in 2009 (Cited in Brealey & Myers & Marcus, 2012) ExxonMobil is the largest stock buybacks from the first quarter of 2009, which bought back about US$ 7,852 million. ExxonMobil is also raising its dividend, with the most recent dividend increase was in the second quarter of 2011, ExxonMobils dividend is US$0.47 per share, increased from US$0.44 per share of its first quarter of 2011. While recently, Exxon boosted its quarterly dividend to US$0.57 per common share (Exxon, 2012). In 2011, Exxon paid out dividends US$9,326 million to the shareholder, the total of shareholder return is 19%, there is a increase of 9 % from 2010 (Exxon, 2012). Exxon seems to be investing most of its earnings into stock buybacks. Historically, share buybacks have not been one of the smartest ways of management to allocate cash, as most buybacks occur when the price of underlying is at its highest (YahooFinance, 2010). Furthermore, Exxon has been raising dividends. But the disproportionate amount of share buybacks to dividends suggests that management is not certain about future profitability of the company. The company believed that oil prices would stay higher over the next few decades; this would mean that earnings per share could only go higher from here. However, if dividends are too high and oil price fall, then profitability would suffer. This could lead to irritated shareholder and depressed stock price for some time.

Chevron
Chevron use cash flow from operating activities generated from the companys business as an indicator of a companys ability to pay dividends and fund capital and common stock repurchase programs. The companys common stock is listed on the New York Stock Exchange (trading symbol: CVX). As of February 13, 2012, stockholders of record numbered approximately 178,000 (Chevron, 2012). Chevron has common stock repurchase program to the pay dividend to shareholder, where the company purchased US$4.25 billion of its common stock in 2011 under its share repurchase program. The program began in 2010 and has no set term or monetary limits to shareholders. In 2011, Chevron has raised its dividend twice marking the 24th consecutive year of increases, which is increased its quarterly dividend by 3.8% to US$0.81 per common share. This followed an increase of 8.3% announced in second quarter 2011. This dividend growth stock has delivered an annualized total return of 20.3% in 2011 to the shareholders. Furthermore, Dividends paid to common stockholders were approximately $6.1 billion in 2011, US$5.7 billion in 2010 and US$5.3 billion in 2009. Chevron is a component of the S&P 500 and Dow Jones Industrial Indexes. The company is also a dividend achiever, which has consistently raised its dividends for 23 years in a row (Marketwatch, 2012). Similar to the ExxonMobils dividend policy, Chevron has been raising its dividend to cover and increase its total stakeholders return. Thus, Chevron has confident about the future of oil price would stay higher over the next few decades. If the future of oil price fall, then it would lead to profitability suffer and the need of external financing, since the company has continue to pay the shareholder.

Bibliography
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Fundamentals of Corporate Finance: Seventh Ed. New York: McGraw-Hill . Chevron. (2012). Annual Report 2011. Chevron . Exxon. (2011). Annual Report 2010. ExxonMobil. Exxon. (2012). Annual Report 2011. ExxonMobil. Keown, A., Martin, J., Petty, J., & Scott, D. F. (2005). Financial Management principles and applications. New Jersey: Pearson Prentice Hall. Marketwatch. (2012). Chevron Corp. Retrieved May 26, 2012, from Marketwatch: http://www.marketwatch.com/investing/stock/cvx Shell. (2012). Shell Annual Report and Form 20-F 2011. Washington, D.C.: Royal Dutch Shell PLC. YahooFinance. (2010). RDS-B: Summary for Royal Dutch Shell plc Common stock. Retrieved May 26, 2012, from Yahoo Finance: http://finance.yahoo.com/q/ks?s=RDS-B YahooFinance. (2010). XOM: Summary for Exxon Mobil Corporation Common. Retrieved May 25, 2012, from Yahoo! Finance: http://finance.yahoo.com/q?s=XOM&reco=1