The final dividend also rose by 4% to $0.47, taking the full-year payout to $1.88, 4% more than in 2013.
Why are the shares down?
Shells share price fell this morning because the firm missed analysts earnings forecasts for last year. The oil and gas giants adjusted earnings per share were $3.57, around 4% below consensus forecasts for earnings of $3.73 per share.
The firms fourth-quarter results were a particular disappointment, with adjusted profits of $3.3bn, versus forecasts of $4.1bn.
However, Id urge you to ignore todays short-term market reaction, and focus on Shells underlying business, which I believe is in good shape to weather the current storm.
Shell cut capital expenditure by around $9bn last year, and sold $15bn of assets. This looked like a smart move at the time, but the subsequent plunge in oil prices has made the cutbacks look inspired.
The proof is in the firms free cash flow: Shell generated free cash flow of $25bn in 2014, compared to free cash flow of zero in 2013.
Of course, this massive improvement wont all be repeated in 2015. Lower oil prices will reduce the firms operating cash flow, while $14bn of last years free cash flow came from asset disposals.
Shell has used last years windfall wisely. In addition to dividend payments of $12bn and share buybacks of $3.3bn, Shell used last years influx of cash to strengthen its balance sheet doubling its cash pile from $10bn to $21bn, without adding to its debt.
Given that last years capital expenditure was $20bn, its clear to me that Shells financial position is now very strong.
What about 2015?
Its worth remembering that the price of oil only really started to tumble in the final quarter of last year. Shell will obviously feel the pain of lower oil prices this year, but this impact should be cushioned by the groups fast-rising levels of gas and LNG output, where prices are more resilient and often fixed by long-term contracts.
Shell is planning to cut a further $15bn from capital expenditure over the next three years, but chief executive Ben van Beurden has promised not to over-react to the oil price fall by jeopardising the firms long-term growth opportunities.
In my view, Shell remains a strong long-term income buy — but there’s no doubt 2015 could be a difficult year.
If you’re looking for firms with a more resilient outlook which may benefit from lower oil prices, I’d strongly suggest the stocks selected as the Fool’s “5 Shares To Retire On“.
Each of these companies is a FTSE 100 member with an above-average record of delivering long-term income growth and capital gains for shareholders.
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