Saudi Aramco: payout boost will lift yield of tight-held stock

Saudi Aramco: payout boost will lift yield of tight-held stock

A meagre dividend yield blunted investor enthusiasm for Saudi Aramco stock when it listed in Riyadh in 2019. The world’s biggest oil group is loosening its purse strings. On Tuesday it announced plans to add performance-linked dividends to its payouts. The company’s shares edged up almost 4 per cent on the news.

The performance-linked distribution is expected to mop up 50-70 per cent of annual free cash flow, after taking account of the base dividend and external investments. RBC analysts expect that to generate up to $12bn-$18bn of extra payouts next year. That would raise the dividend yield by as much as a fifth from 3.5 per cent.

Even so, the yield will be lower than for international oil majors. That is not a sign of stinginess. Majors paid out 30-40 per cent of their operating cash flow last year, according to Citi. Aramco paid out nearly half.

Rather, it reflects Aramco’s inflated valuation. The shares trade on 16 times forward earnings. That is a fifth lower than the average since it floated in 2019. The decline reflects the sharp fall in oil prices which pulled down first-quarter net income by a fifth. Nonetheless, the multiple is still more than twice the sector mean.

The elevated valuation