Aramco’s Dividend Yield Looking Less Attractive as Oil Surges
Investors buying Aramco shares in the hope that surging crude prices will encourage the company to follow other oil majors by boosting payouts are being disappointed.
While Dahran, Saudi Arabia-based Aramco, the world’s biggest crude producer, said Sunday third-quarter profit more than doubled to 114.1 billion riyals ($30.4 billion) from a year ago, there was no announcement on additional dividends.
After sliding in their first three months of 2020, the shares have since climbed above the level of the initial public offering of almost two years ago. But that’s cut the yield on Aramco stock to 3.7%, lower than peers such as Exxon Mobil Corp. and BP Plc.
The dividend plans remain “vague,” Bank of America analysts including Moscow-based Karen Kostanian wrote in a note last week. “Aramco’s current and future share-price trajectory will depend on its ability to utilize a window of opportunity to boost minority shareholder returns.”
Ensuring Aramco shares are attractive to foreign investors is paramount for Saudi Arabia. The government still holds a 98% stake in the company and has indicated it wants to sell more shares in the future. But a low yield was one of the reasons some foreign investors stayed away from the December 2019 IPO, and back then the yield was even higher.
Some say it’s only a matter of time before the story changes. Increased shareholder payouts as oil prices and production climb are part of the bull case for Aramco, Morgan Stanley analysts including Martijn Rats in London wrote in an Oct. 22 note.
Meanwhile, EFG-Hermes sees “strong potential for the company to opt to pay out a special dividend for 2021,” Yousef Husseini, an analyst at the bank in Cairo, wrote in a note Sunday.
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