Image:-Shell gas station
Shell also suspended the next tranche of its share buyback program and said that after its net profit nearly halved in the first three months of 2020, it reduced oil and gas output by nearly a quarter.
Shell's London shares had slumped by 0753 GMT by 7 percent, sharply underperforming rival BP (BP.L) down by 2.2 percent.
Shell has been prideful for years in never cutting its dividend since the 1940s, resisting such a move even during the deep downturns in the 1980s oil market.
However, some investors had called on major oil companies to break an industry tabou and consider cutting dividends, rather than taking on more debt to keep payouts on.
"Because of the risk of prolonged economic uncertainty, lower commodity prices, higher volatility and uncertain demand outlook, the Board is of the opinion that maintaining the current level of shareholder distributions is not prudent," said Shell Chad Holliday.
He also said the cut in Shell's payout was a long-term "reset" of dividend policy for the company.
Shell said it would cut its quarterly dividend from the 47 cents it paid each quarter in 2019 by two-thirds to 16 cents per share. Shell would save about $10 billion if maintained overall for 2020.
Shell is the first of five so-called Oil Majors to cut their dividend as a result of the coronavirus crisis fallout. BP and Exxon Mobil (XOM.N) have stated that they will keep their first quarter dividends while Total (TOTF.PA) and Chevron (CVX.N) have yet to report first quarter results.
The dividend reduction also comes after this month's Shell laid out the most comprehensive strategy for the oil and gas sector to reduce greenhouse gas emissions by 2050.
"The 66 percent cut in dividends is a necessary evil to strengthen Shell's capital framework and position it for the energy transition offense," said Christyan Malek, an analyst at JP Morgan.
Last year Shell paid about $15 billion in dividends making it the largest dividend payer in the world after Saudi Arabia's national oil company Saudi Aramco (2222.SE).
Last year's dividends paid by Shell and BP also accounted for 24 per cent of the total amount of 75 billion pounds ($94 billion) paid out by companies in the FTSE 100 index.
Shell had previously planned to increase payouts to investors through dividends and share buybacks to $125 billion between 2021 and 2025 following years of deep cost cuts after its acquisition of BG Group for $53 billion in 2016.
Outside the Oil Majors, Norway's Equinor (EQNR.OL) became the first large oil company to cut its dividend in response to the current downturn, cutting its first quarter payout by two-thirds last week.
Global demand for energy could slow by 6 percent in 2020 as a result of coronavirus lockdowns and travel restrictions in what would be the biggest absolute contraction recorded, the International Energy Agency (IEA) said on Thursday.
Shell last month said it would reduce this year's capital expenditure to a maximum of $20 billion from a planned level of around $25 billion and also cut off operating costs from an additional $3 billion to $4 billion over the coming 12 months.
Its first-quarter net income, attributable to shareholders on the basis of current supply costs and excluding identified items, fell 46 percent from a year earlier to $2.9 billion, above the consensus of Shell's analyst survey.
Shell's net income for the fourth quarter was as well $2.9 billion.
In response to the demand shock, the company said it cut activity in its refining business by up to 40 per cent.
Shell said it had expected to cut oil and gas production in the second quarter from 2.7 million boed in the first quarter to between 1.75 million and 2.25 million barrels of oil equivalent per day (boed).
Shell's gearing, or debt-to-capital ratio, fell from 29.3 percent in the fourth quarter to 28.9 percent in the first quarter, but fell from 26.5 percent a year earlier in the same period.