Dubai: Abu Dhabi’s power and water giant TAQA has done more than enough to please its shareholders, not just by issuing dividends but promising a payout every three months.
Will other listed companies follow the TAQA way to introduce quarterly dividends?
“Currently, none of the other listed UAE companies offer quarterly dividends, with ADNOC Distribution and du paying dividends semi-annually,” said Vijay Valecha, Chief Investment Officer at Century Financial. “On Saudi Tadawul, 14 companies are paying quarterly.
“TAQA's move reflects its increased scale and improved financial profile, resulting from its landmark transaction in July with Abu Dhabi Power Corporation. Paying regular dividends sends a clear, powerful message about a company's prospects and performance. And its willingness and ability to pay steady dividends over time provides a demonstration of financial strength and share-holder friendly management.
"UAE/GCC stocks are solid from a dividend perspective due to the absence of dividend distribution tax. As a result, dividend yields are an important criterion while shortlisting equity picks.
“Quarterly dividends will certainly be appreciated by income-seeking investors and help diversify the investor base. This will improve the stock’s liquidity and drive prices. We expect more to follow suit.”
Looking at it from another perspective, how are investors treating companies sticking with their annual dividend policy or make cuts to their payments? Or worse, not pay at all.
Dubai Islamic Bank’s stock dropped for two days by more than 4 per cent after slashing full-year dividends to 20 fils a share, down from 35 fils. Dubai's telco du underwent the same investor treatment as it lost more than 5 per cent in value following a dividend shave-off to 28 fils a share from 34 fils.
"du reported a profit that was 17 per cent lower than the previous year and at the same time cut its dividends also from," said Valecha. "Consequently, shares were heavily sold with the stock witnessing losses of over 6 per cent in the past two weeks."
The district cooling giant Tabreed sustained a four day bear run for not being not generous enough with shareholder payout, as it nearly halved dividends to 5.75 fils a share from 10.5 fils. Abu Dhabi Aviation’s experience was no different, slipping in the trading session that followed its board of directors recommending a 10 per cent dividend or just half the amount distributed a year ago.
Of course, there are other factors besides lower dividends adding to a stock's woes, such as unimpressive earnings and ambiguity about what future holds as the pandemic still goes on. But dividend payouts are emerging as dominant factor making or marring a stock’s fortune early this year.
Investors were quick to latch on to UAE's key lenders - First Abu Dhabi Bank and Emirates NBD - after they proved as generous with their handouts as they were a year before despite posting lower full-year profits.
They dropped the stock when TAQA's board of directors first made the quarterly-dividend plan public in November, setting off a selling spell that lasted four days and cost it more than 17 per cent of its value. It faced a similar reaction when shareholders approved the proposal a month later.
Investors appeared to get it this way - the policy is aimed at contributing regular funds to government coffers. "Some (investors) believe that the prospect of getting regular income increases demand for a company's shares," said Anita Yadav of Global Credit Advisory. "Others believe taking cash out in the present reduces a company's future growth potential and therefore makes it less attractive for an investor."
But Abu Dhabi Commercial Bank gained for the next three days despite slashing dividends to Dh0.27 from Dh0.38 per share, and quite different to how investors had been treating the stocks with payout cuts. So what plays on investors mind while picking stocks for their investments?
"The more risk-averse would prefer dividend paying stocks while investors with higher risk appetite will prefer companies with greater future capital gain prospect," said Anita Yadav, CEO, Global Credit Advisory.
“Among non-banking entities, du (4 per cent) and Aramex (3.78 per cent) are expected to provide income gains to investors.”