It is that time of the year when local and regional investors start eyeing stocks of companies that are expected to pay attractive dividends. And so far so good.
Announcements already made by some of the banks in the UAE and Qatar have led investors to wade into those stocks, leading to market rallies. In fact, UAE banks’ which have announced fourth quarter results until last week have increased their payouts and with a few more banks yet to report their earnings, it looks likely to surpass last year’s total dividend payouts of $8.08b.
Listed companies in the Gulf have been paying generous dividends over the past two to three years. The average dividend yield here is 4 per cent while the pay-out ratio is 40 to 50 per cent. The region’s 2011 4.3 per cent yield stands out favourably when compared to 2.2 per cent and 2.1 per cent of MSCI World and MSCI Emerging Markets respectively.
“The GCC countries have remained fairly resilient to the global crisis, though there have been major swings in the stock prices owing to declining demand and political tension in the region,” said Raghu Mandagolathur, senior vice president at Kuwait Financial Centre (“Markaz”). “Nevertheless, we are optimistic that the dividend pay out by GCC companies would be much healthier than other developed and emerging markets.”
While some analysts are optimistic of an overall higher earnings growth in 2012 compared to 2011, there are others who are on the conservative side saying there would only be ‘modest’ or ‘subdued’ growth in corporate earnings in 2012. That for the latter would mean dividend yields—the ratio of payouts to share price—may not see an increase this year.
Rakan Himadeh, assistant fund manager at Al Mal Capital’s asset management group, is more optimistic about the prospect for dividends in 2012. That is because he expects to see higher earnings growth compared to 2011, which he says “will result in higher dividend in absolute terms,” adding though that “increased payout ratios really depends on strong cash flows coupled with management’s strategy to increase shareholder returns.”
Kuwait Financial Centre is expecting a modest growth of 5 per cent in the GCC corporate earnings in 2012 financial year.
“The financial tumult, declining demand for commodities and political turmoil have all resulted in slowdown in economic activities, which has had a direct bearing on the performance of the companies across the GCC,” said Mandagolathur. “Given the economic situation and the corporate earnings for the three quarters of 2012, we expect the dividend pay-out to be lesser than the 2011 levels.”
“As the earnings growth for the region as a whole has been modest during 2012, we don’t expect a material increase in the absolute amount of dividend paid this year,” said Shakeel Sarwar, head of asset management at Securities and Investment Company (SICO) in Bahrain.
Sectors that have traditionally reported highest dividend yields include telecommunications and cement. But analysts somewhat differ on the dividend prospects of petrochemical companies.
Of all the GCC countries, Saudi companies accounted for the highest share of dividends paid in 2011 and the trend would continue in 2012-2013, according to Mandagolathur.
In 2011, the banking sector paid the highest dividends of 30 per cent followed by telecom (26 per cent) and petrochemicals (21 per cent). In 2012, he expects the banking and telecom to mirror a similar trend.
Saudi-based banks also have marginally increased their dividends for 2012. Apart from a few companies, Sarwar said the dividends in telecom and cement sectors would continue to be stable.
Based on the three quarters’ performance, Mandagolathur expects financial services to deliver some robust growth though against a weak base.
When it comes to the banking sector of UAE, Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group, the market had expected similar dividend payments as to those in 2011. The fourth quarter results released so far, in general, been above market expectations both in terms of profits and dividends but lower in terms of NPLs (non-perfoming loans), he said.
“Market expectations were for 40 per cent dividend payout,” he said.
Consensus expectations were for net profit to increase by 28 per cent year-on-year in the last quarter of 2012. Net profit expectations were for a decline of 23 per cent in fourth quarter of 2012 as against the same period in 2011. For the full year market expectation was 5 per cent year-on-year increase in net profit.
The UAE real estate sector should exhibit strong results for the fourth quarter and in general across the Gulf, Khokhar said. Telecommunication companies are also expected to perform well, he said, adding the 2012 results of Saudi Telecom Company (STC) were negatively impacted by their foreign operations but the domestic market performed well.
Mandagolathur agreed. “We forecast the real estate sector to deliver a strong growth in 2012,” he said. “We expect the real estate companies to pay moderate dividends in 2012 as it evolves from the downturn in 2010 and 2011,” Mandagolathur said.
Views diverge on petrochemical stocks. The petrochemical sector is expected to restrict its dividend pay-out in 2012, according to Mandagolathur.
But SICO’s Sarwar expects the regional petrochemical sector’s pay-out to increase as companies mature because they do not have significant expansion plans. Tasnee, Industries Qatar and Yansab are some of them.
The petrochemical sector, according to NBAD’s Khokhar, has shown volatile results for the fourth quarter but the large blue chip companies have met expectations and the recovery in emerging markets particularly China bodes well.
High dividend picks of analysts:
Shakeel Sarwar, head of asset management at Securities and Investment Company (SICO), Bahrain: These are 10 of the highest dividend yielders in the region based on our expected pay-out for 2012: Air Arabia (8.5%); Doha Bank (8.5%); Commercial Bank of Qatar (CBQ) (8.0%); Saudi Chemical (7.8%); Qassim Cement (7.3%); Advanced Petrochemicals (APPC, in Saudi Arabia) (7.2%); Saudi Cement (7.1%); Omantel (6.9%); Zain (6.8%); Saudi Arabian Fertiliser Company (SAFCO) (6.4%).
Saleem Khokhar, head of equities, asset management group, National Bank of Abu Dhabi: Strong dividend paying companies with capital appreciation potential include Air Arabia, First Gulf Bank (FGB), Etisalat, Etihad-Etisalat Company (Mobily), Saudi Telecom Company (STC), Saudi Arabian Fertisliser Company (Safco), Commercial Bank of Qatar (CBQ) and Omantel.
Rakan Himadeh, assistant fund manager, Al Mal Capital, UAE: Some of the liquid high payers include: Saudi cement names, Saudi electricity, Al Rajhi Bank, Riyad Bank, Saudi Telecom Company (STC), Saudi Basic Industries Corporation (Sabic), Air Arabia (although their yield is coming down), Qatar Islamic Bank (QIBK), Qatar National Bank (QNB) and Commercial Bank of Qatar (CBQ).