PIF-backed Saudi companies increase dividends

August 30, 2024

PIF dividends — Dividends from the companies it has invested in are helping to boost the income of Saudi Arabia's Public Investment Fund

PIF benefits from higher dividends
$469m per quarter from STC
‘Mature industries’ tend to pay more

This week Saudi Arabia’s former telecom monopoly announced increased dividends. It became the latest company part-owned by the kingdom’s sovereign wealth fund and listed on Riyadh’s bourse to do so.

The higher payouts provide a boost to the income of the Public Investment Fund, which it can then reinvest in higher-growth industries and accelerate Saudi’s economic diversification.

Other investors can also benefit.

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“It would be a good strategy to piggy-back on the dividend payouts by PIF-owned companies as part of tactical asset allocation,” said Junaid Ansari, director of investment strategy and research at Kuwait’s Kamco Invest. “But, in the longer run, stock selection would be the key.”

Saudi Telecom Co (STC) on Sunday said it will pay at least SAR0.55 ($0.15) per share each quarter for three years starting from the final quarter of 2024. This is up 38 percent on the SAR0.40 per share that it pays currently.

PIF owns 64 percent of STC’s five billion shares. So, under the new dividend programme, it will receive SAR1.76 billion ($469 million) each quarter – up from $341 million currently.

STC also paid an additional, special SAR1 per share dividend for 2023, netting PIF an extra $853 million, and analysts expect the company to distribute a similar special dividend for 2024.

STC is one of at least 10 listed Saudi blue-chips in which the PIF is a sizeable shareholder.

Most notably, the sovereign wealth fund owns 16 percent of Saudi Aramco. The world’s largest listed oil company’s second quarter ordinary dividend is slightly higher than its payout for the prior-year period despite its quarterly profit declining 3.4 percent year on year.

A trio of PIF-backed Saudi banks – Saudi National Bank (SNB), Riyad Bank and Alinma Bank – have also raised dividends recently.

“Dividend payouts are a function of whether a company can reinvest its earnings into something that will provide a higher return than the cost of equity,” said Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai.

“Typically, high-growth companies don't pay high dividends because it makes more financial sense to reinvest in the business. The more mature an industry and the more mature a company, the higher the dividend it's likely to pay.

“Energy, banking and telecoms are mature industries so it's not unusual for companies in these sectors to pay high or higher-than-average dividends.”

SNB has announced dividends totalling SAR1.80 per share, up from SAR1.45 per share in 2023.

Alinma will pay dividends of SAR0.5 per share for the first half of 2024. If it does the same for the third and fourth quarters its dividend payouts this year will be the highest since 2018.

Riyad Bank paid a first-half dividend of SAR0.80 per share, up from SAR0.65 per share a year earlier and its highest dividend payout since 2013.

“There are a number of company-specific catalysts that have resulted in increased dividend payouts,” said Ansari. “Riyad Bank reported one of the highest quarterly profits on record and the increased dividend represents a sharing of the growth with investors.”

Not all PIF-linked companies have raised dividends. Those in higher-growth sectors are more likely to reinvest earnings in expanding their operations.

The PIF also owns 60 percent of Saudi Tadawul Group, which runs the country’s stock exchange. Its other domestic investments include 74 percent of Saudi Electricity and 67.2 percent of Saudi Arabian Mining Co (Ma’aden).

Saudi Electricity’s annual dividend has remained unchanged for the past 15 years, while Tadawul’s has fallen since 2022 and Ma’aden has never paid a dividend.

STC’s shares surged nearly 10 percent to a 13-month high on Sunday following its dividend announcement.

“Higher dividends typically lead to higher share prices,” said Fadlallah.

“Investors buy shares for two components: the capital return and the dividend. In industries such as telecoms where the growth prospects are moderate, shareholders would like the company to either buy back shares or pay higher dividends if it is unable to invest to provide a higher return than the weighted average cost of capital.”