Petchems may follow SABIC in reconsidering dividend policies: Analysts

Saudi Basic Industries Corp. (SABIC) and SABIC Agri-Nutrients Co. decided to change their methodology for disclosing the board of directors’ decisions on interim dividend payments, effective from 2025, subject to approval by the ordinary general meeting (OGM).

Analysts surveyed by Argaam expect that this step will prompt other companies in the petrochemical sector to amend their methodology for dividend distribution, especially if they face similar challenges, saying that these companies may seek to achieve a balance between rewarding shareholders and maintaining the liquidity needed to overcome market fluctuations.

The analysts also indicated that SABIC is one of the biggest players in the petrochemical sector, and therefore its policies directly affect the market.

New dividend distribution methodology:

Hussain Al-Attas, a financial analyst, said that in December 2024, SABIC’s board of directors announced the distribution of cash dividends at 17% of capital, or SAR 1.7 per share, for H2 2024. Thus, the total distributed dividends for FY 2024 will reach SAR 3.4 per share, representing 34% of capital.

Meanwhile, SABIC Agri-Nutrients decided to distribute cash dividends at 30% of capital, or SAR 3 per share, for H2 2024, bringing the total full-year dividends to SAR 6 per share, or 60% of capital.

For his part, Suleiman Al-Khalidi, analyst of Arab and international capital markets, explained that SABIC has decided to distribute cash dividends of SAR 1.7 per share for H2 2024, with the eligibility to the dividend for shareholders of record at the beginning of 2025.

He added that SABIC Agri-Nutrients announced the distribution of SAR 3 per share for H2 2024, in addition to similar distributions for H1 2024, bringing the total distributions for FY 2024 to SAR 6 per share.

Reasons for the change in dividend policy:

SABIC is facing challenges in the global petrochemical markets, including declining demand, rising costs, and lower profit margins. Despite these challenges, the company has been keen to continue dividend distributions to maintain investor confidence, according to Al-attas.

As for SABIC Agri-Nutrients, Al-Attas said that the generous dividends may reflect strong financial performance and a will to reward shareholders, in addition to enhancing the attractiveness of the stock in the market.

Al-Khalidi pointed out that despite the major challenges facing the petrochemical sector globally, including intense competition and weak demand, especially from the Chinese markets, these decisions reflect the strength and stability of the two companies in the Saudi market.

He expected that these dividends will contribute to bolster investor confidence and support the price stock’s long-term performance.

Hajjaj Hassan, Head of Argaam Plus, said that SABIC's new cash dividend policy, which was certainly in line with the approach of Aramco, the company's new owner, came to reassure the company's investors and sector investors in general, and confirms the strength and solidity of financial positions of SABIC and its subsidiaries and its optimism about the future of the sector.

Stock Performance:

Sulaiman Al-Khalidi explained that SABIC Agri-Nutrients shares witnessed significant movements in recent years, as its price peaked at SAR 209 before falling to SAR 103, then rebounding to SAR 111 after the recent announcement.

As for SABIC, it faces challenges related to high debt, as its capital value amounts to SAR 20 billion, he said, adding that analysts believe that the management needs to take strategic steps such as mergers and acquisitions to spur performance and productivity.

Hassan also pointed out that SABIC has distributed the equivalent of SAR 76 per share in the last 20 years, taking into account capital increases through bonus shares or priority rights, i.e. it distributed more than seven times the nominal value.

Implications of such change on the petrochemical sector:

Hussain Al-Attas added that SABIC is one of the largest players in the petrochemical sector, and therefore its policies directly affect the market.

The company's continued distribution of dividends, despite the challenges, may prompt other companies in the sector to adopt similar policies to maintain investor confidence. However, each company's ability to distribute dividends depends on its financial performance and its own circumstances, he added.

For his part, Al-Khalidi explained that despite the slowdown in global markets, especially in East Asia, the petrochemical sector is expected to witness long-term growth. He highlighted that SABIC Agri-Nutrients shows greater flexibility in its dividend distribution policy, which boosts its position as a reliable source of returns for investors.

Hassan said that the Saudi petrochemical sector is one of the historical sectors and is heavily backed by the government through feedstock prices compared to its counterparts in the region. He showed that there is a strong connection between petrochemical companies and yield investors, especially since most companies were making generous cash distributions to their shareholders, most notably SABIC, which has not stopped distributing in the past 20 years.

“However, it is eventually a cyclical sector that is fully linked to the economic cycle and the global economy, and the return of growth in the manufacturing sector in the US and China may be a strong incentive for the sector in the coming year, so we are expected to witness growth in companies' profits in the short and medium term,” he continued.

The possibility of other companies following the same approach:

Al-Attas said that other petrochemical companies are likely to update their dividend distribution policies, especially if they face similar challenges, adding that these companies may seek to achieve a balance between rewarding shareholders and maintaining the liquidity needed to overcome market fluctuations.

SABIC's commitment to dividends distributions strengthens its position, prompts the sector to review its financial policies:

Al-Attas indicated that SABIC and SABIC Agri-Nutrients demonstrate a commitment to distributing dividends to shareholders, despite the challenges facing global markets.

This approach may affect the dividend distribution policies of other petrochemical companies. It also reflects the importance of achieving a balance between rewarding shareholders and maintaining financial sustainability in volatile market conditions, he added.

For his part, Al-Khalidi pointed out that these decisions reflect the commitment of SABIC and SABIC Agri-Nutrients to support shareholders' interests and continue growth in the face of global challenges, which enhances their position as two main pillars of the Saudi economy and the petrochemical sector.