Saudi petchems, cements among top 10 dividend picks: Al Rajhi Cap

Al Rajhi Capital has identified 10 picks for dividend payouts in 2017, with petrochemical and cement firms forming the majority.

Major petrochemical producer Saudi Basic Industries Corp. (SABIC) will pay out a dividend of SAR 5 this year, with a payout ratio of 80 percent, backed by healthy profit growth.

Yansab, which is 51 percent-owned by SABIC, is well-positioned to pay out higher dividends than before. The payout ratio could increase to 90 percent this year, with a dividend of SAR 4 per share. Dividend yield is seen reaching 7.3 percent.

Advanced Petrochemical is expected to pay a SAR 2.8 dividend for the current year, as the company has a healthy debt position amid no major expansion plans.

In the telecom sector, Saudi Telecom Co. (STC) will likely maintain its annual dividend at SAR 4 per share, in light of its free cash flows and cash/investments a SAR 5 and SAR 12 per share, respectively.

Jarir Marketing Co. was the preferred pick in the retail sector, with an expected dividend of SAR 8.1 per share for 2017 and a payout ratio of 90 percent. The payout is backed by the company’s revenue growth, aggressive store additions and solid free cash flows.

Elsewhere in the cement sector, Saudi Cement is projected to maintain a payout ratio of 92 percent, which implies a dividend of SAR 3.75 per share.

Qassim Cement and Yanbu Cement would continue with their payout ratios of 100 percent and 95 percent, respectively. Qassim is forecast to pay cash dividend of SAR 3.25 in 2017.  

Southern Province Cement would raise its payout ratio to 88 percent, following completion of recent expansions in Bisha and Tuhama plants.

Arabian Cement’s payout ratio is also expected to exceed 85 percent this year, compared to 81 percent in 2016, despite low demand and oversupply in the western region.

 “These companies have an average RoE of 22 percent (vs market average of 10 percent) and dividend yield of 6.3 percent (vs market average of 3.3 percent),” Al Rajhi Capital added.

According to the brokerage these companies were chosen for their capacity for relatively strong free cash flows and low debt obligations, which allows sustainability in dividend payments. “We have also considered qualitative factors apart from the usual quantitative factors like ROE, valuations, etc.”