Shell's (LSE:SHEL) latest results showed where its cash returns are going. The oil major reported adjusted Earnings of $10.8bn for the third quarter and launched a $5bn share buyback, while its sterling Dividend per share in our data is broadly flat on a year ago. For income investors, the question is whether the balance between dividends and Buybacks suits their needs.

A flat payment, but plenty of cover

Our figures, a snapshot from 7 October, show an annual dividend of 107.75p per share and a latest quarterly payment of 28.92p. The trailing 12-month Yield is 3.1% and the indicated yield is also 3.1%. That is a respectable level of income, although it is below the yield currently available at some FTSE 100 financial stocks and at rival BP.

Year-on-year growth is -0.2%, essentially flat and technically a small decline. Shell declares its dividend in US dollars, so a figure of this size in sterling may partly reflect currency movements, and it should not automatically be read as a decision by the board to cut. Even so, the sterling investor's income did not rise over the period in our data, which is what matters for anyone spending those pounds.

The Payout Ratio of 33.1% implies cover of about 3.0 times. That is a solid level for a cyclical business, and it means that dividends took up only around a third of trailing earnings. Commodity swings can reduce earnings quickly, but this ratio gives a far larger cushion than that shown by many other high-profile income shares.

The streak question

Shell has made payments for 33 consecutive years in our data, while its run of continuous growth stands at zero. That zero is the direct result of the small decline in the latest figures. Investors who remember 2020 will also recall the company's large dividend cut during the pandemic, a reminder that a long record of payment can include a major reduction.

A zero growth streak does not necessarily mean the dividend is at risk, particularly with cover of three times. It does, however, mean that Shell cannot currently be described as a consistent dividend grower on this sterling measure, and investors looking for that characteristic should be clear on the distinction.

What the third quarter showed

Shell's (LSE:SHEL) results came on 29 October. Adjusted earnings were $10.8bn, profit was reported at $12.1bn and one report put Cash Flow at $21bn. Results topped estimates, and the shares were reported to have risen by 2.5% in response. The company also took a final Investment decision on the second phase of LNG Canada, adding a further call on capital.

The third-quarter Interim Dividend was set at $0.3906 per share. This is the newest figure available, but because it is declared in dollars, it cannot be compared directly with the 28.92p in our snapshot without a sterling conversion.

The $5bn buyback is the striking feature. Set against a flat sterling dividend, it shows a company with plenty of cash and a willingness to return a substantial share of it by reducing its share count. Fewer shares can help future dividends per share, and buybacks can be flexed more readily than dividends when conditions change. But an investor relying on regular income gets no direct cash from them unless shares are sold.

What to watch

Investors should watch the sterling equivalent of the $0.3906 dividend and whether it breaks the zero growth streak, along with the Exchange Rate between the dollar and the pound. Oil and gas prices will determine whether cash flow of this order can be sustained. Spending commitments on LNG Canada Phase 2 are another consideration, along with whether the fourth-quarter update maintains the pace of buybacks.