Boston, MA 05/05/2014 (wallstreetpr) – As per Bloomberg report, the wide gap between the share prices of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and Royal Dutch Shell plc (ADR) (NYSE:RDS.B) has led it to review its scrip-dividend payouts. The difference in the prices of the two classes of shares made it costly for Europe’s biggest oil company to restrict equity dilution.
Wide Disparity In Prices
To counter dilution of its shares,Shell issued Class A shares in the form of scrip dividend and purchased back Class B (RDSB) equities. The gap between the two rose to a record of about 7 % premium for B shares. Shell has brought back nearly $1.2 billion of B shares this year. Shell said during its results that nearly 47% of shareholders preferred scrip dividends.
After the merger of Royal Dutch Petroleum Co. and Shell Transporting & Trading Co. with that of Royal Dutch Shell Plc (RDSA) in 2005, the shares were divided into Class A and B. The Anglo-Dutch company, which has been gouging plans to merge the two categories of shares, has so far distributed over $11 billion in dividends and effected nearly $5.7 billion of share buybacks in the last one year.
Tax Policy
An analyst at BMO Capital Markets Ltd, Iain Reid, said that Investors do not like the segregation as it costs more for London-based investors to purchase Class B shares, which are free from Dutch withholding tax regulations. Reid said that while Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s CFO, Simon Henry defended the scrip dividend program earlier, he did not defend it this time.
Hery said that share buybacks are presently restricted to Class B shares due to Dutch withholding tax rules. He added that Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is working on solutions to get the flexibility to buy back shares in both classes.
In the first-quarter, Shell increased dividends by nearly 4 percent to $0.47 per share as compared to the previous year.
