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Stock Market News: Shell Seeks to Sustain Dividends; RH Sees Sales Pressure

By Dan Caplinger - Mar 31, 2020 at 12:18PM

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The stock market stayed resilient Tuesday morning.

The stock market had a mixed performance Tuesday morning, climbing back from a weaker open at the beginning of the day's trading. The constant rise in COVID-19 cases in the U.S. and elsewhere around the world has investors worried about the economic impact of the coronavirus pandemic, and market participants aren't certain whether efforts to stimulate the economy and provide financial relief will be enough to prevent a recession. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.23%) was up 25 points to 22,352. The S&P 500 (^GSPC -0.16%) gave up a point to 2,621, but the Nasdaq Composite (^IXIC -0.50%) gained 35 points to 7,810.

The big plunge in crude oil prices has put energy companies in a financial bind, but the biggest companies in the world are still making efforts to avoid forcing their shareholders to endure dividend cuts, and Royal Dutch Shell (RDS.A) (RDS.B) gave investors a vote of confidence on that front. Meanwhile, luxury retailer RH (RH 1.06%) dealt with significant share-price declines after reporting its latest financial results -- while admitting the difficulties in predicting how the remainder of 2020 will look.

No Shell game here

Royal Dutch Shell saw its stock climb 5% in the wake of the oil giant's latest update on business conditions. Although the release had a lot to say, the fact that it didn't mention a dividend cut seemed to bolster views on the stock.

Rig ship near a port facility on a clear day.

Image source: Royal Dutch Shell.

Shell warned investors that due to the deteriorating outlook for oil prices, it expects first-quarter impairment charges of $400 million to $800 million. The oil company said that it takes a $6 billion annual hit to operating cash flow for every $10 per-barrel decline in Brent crude prices, and it sees considerable uncertainty ahead as a result of the coronavirus pandemic.

Yet Shell assured investors that it remains financially strong from a liquidity standpoint. The company just got a new $12 billion revolving credit facility, adding to a $10 billion revolver from last December. Shell also has $20 billion in cash and equivalents available. Those measures, along with cost-cutting efforts, look a lot like what Chevron and others have done explicitly to defend their dividends.

From that -- and with the company conspicuously choosing not to make a dividend cut now -- investors are more hopeful that Shell's double-digit dividend yield might survive. Not every energy stock will  be able to match that performance, and that could give Shell an edge over its competition from an investing standpoint.

RH deals with falling sales

Elsewhere, shares of RH fell 10%. The luxury home-furnishings retailer saw its revenue slide in its fourth-quarter financial results, and prospects for 2020 are uncertain in the wake of the coronavirus crisis.

RH said that net revenue was down 1% from year-ago levels, with the company blaming part of the shortfall on lower inventory levels resulting in greater backorder activity during the holiday season. Also, RH decided not to do its traditional holiday assortment this year, and that put pressure on sales, as well. The retailer was pleased with its bottom-line performance, with improving operating margin levels helping to send adjusted earnings per share higher by 27% year over year.

Yet the coronavirus outbreak has forced RH to take drastic measures, including closing all stores until further notice, and it therefore withdrew all of its prior guidance and outlooks on fiscal 2020. Top executives will give up their salaries to help RH get through tough times, but CEO Gary Friedman assured investors that the company is in a strong financial position.

Luxury retail is a tough sector, and it's hard to predict how luxury shoppers will react in the months to come. If pent-up demand results in big purchases after the worst of the pandemic is over, then RH's share-price pullback could end up being a bargain opportunity.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RH Stock Quote
$286.87 (1.06%) $3.02
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,803.47 (0.23%) $76.65
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,145.19 (-0.16%) $-6.75
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$12,657.55 (-0.50%) $-63.03
Chevron Corporation Stock Quote
Chevron Corporation
$153.64 (1.65%) $2.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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