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Announcements of new share buybacks are traditionally greeted by share price rises, the expectation being that the company buying lots of shares will push the price higher, or at least support it, thanks to a forced buyer being out there.

But that’s not the case this morning for either Shell ($25bn 2018-20; $2bn in next two months) or Diageo (another £2bn) with both trading lower by around 1%, because this wasn’t the only news they released.

As good as the news from Shell is, very strong Q2 profit growth (on a CCS basis: current cost of supplies), thanks to higher oil prices, still missed expectations (trying to soften the blow?).

Guidance also suggested lower Gas and Upstream production and flat oil product sales. And the dividend was left unchanged. The latter wouldn’t normally be a biggie, but the negative share price reaction suggests shareholders asking why some of this monster return over the next two years isn’t being allocated to dividends that they could actually spend (or reinvest), rather than the company taking the decision for them, merely reducing the number of shares in circulation, thereby flattering the Earnings per share (EPS) metric.

A bird in the hand and all that.

As for Diageo, its shares are down by a similar magnitude even after announcing another £2bn in buybacks, on top of the £1.5bn programme it completed in February.


Because its outlook statement warns about adverse currency moves hampering future sales growth. This could have a knock-on for profits and thus cash-flow and potentially dividends.

Today’s announcement may have seen the final dividend raised by 4.9% but for those buying the shares today, for the future, the dividend growth may be much less by the time they come to be paid for taking the risk of buying the shares today.

Hence investors offering a lower price to buy the shares today, and those sitting on healthy gains from March’s near 4-month bounce taking profits.

Shares off their worst levels, but the statement from the markets is clear. And as we’ve said a thousand times, outlook trumps results and cash is king.


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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Mike Van Dulken

Mike van Dulken

Accendo Markets’ Mike van Dulken has worked in the City since 2002, with some of the biggest names in the City. His career kicked off at Jefferies as an equity analyst before a 2007 move to Société Générale saw him help service hedge funds with short-term trade ideas during the financial crisis.

Head of Research at Accendo since 2010, covering shares, indices, commodities and FX, he is regularly quoted in the financial press. Accendo Markets has been voted Best CFD research Service by ADVFN in 2017 and 2018.

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