TASI dividends still going strong; cement, petchem firms top payers

Cement and petrochemical companies are proving to be the top dividend payers among Saudi stocks after the recent sell-off in the market, Al Rajhi Capital said in a note on Monday.

Although the petrochemical sector’s earnings are expected to decline in 2015, due to the fall in product prices and a slowdown in China, their high cash balance will allow them to nearly maintain dividend payments.

The earnings of many cement companies— which saw decent sales albeit at lower product prices— have been largely stable so far in 2015. The sector’s stock prices have also seen a sharp correction, resulting in attractive dividend yields for 2015E.

“We are positive about TASI’s dividend yield over the near-term. We expect sectors such as cement, retail and food to pay higher dividends this year on the back of increasing profits,” Al Rajhi added.

Top picks show attractive dividend yields

Arabian Cement, which clocked robust growth on the back of massive construction and cement demand in the western region, paid a dividend of SAR 5 per share in 2014. Even if it maintains its dividend of SAR 5, it currently trades at an attractive dividend yield of 8.9 percent.

Yamama Cement, which operates in the lucrative central region of Saudi Arabia, is expected to see earnings recover in 2016 as construction activity revives and cement demand picks up. Yamama is expected to pay a dividend of SAR 3 per share this year, translating into a dividend yield of 7.7 percent.

SABIC, despite a sharp decline in the product prices, has a strong cash position of about SAR 73 billion which will help offer a healthy dividend payout. SABIC is expected to pay a dividend of SAR 5.5 a share for 2015, which translates into a dividend yield of 7.1 percent.

STC is expected to increase its dividend payout in 2015 on the back of strong cash flow. The company’s dividend yield at the current market price is 6.5 percent.

Advanced Petrochemical Co., a pure-play polypropylene producer, has boosted margins in the last few quarters. Plus, it is expected to production volumes over the medium-term. Given the prospects, a dividend of SAR 3 a share for 2015 is expected, implying a yield of 6.6 percent.

Saudi Airlines Catering is the sole catering service provider to Saudi Arabian Airlines. The stock has corrected sharply over the past few months and is currently trading at an attractive dividend yield of 4.9 percent.

Al Tayyar, a leading tours and travel operator, will directly benefit from the increase in religious visas post the grand mosque expansion. Its rising presence in the hospitality sector will drive earnings growth in the near future. The stock offers a dividend yield of 4.7 percent at current prices.

Jarir Marketing Company, which has aggressive expansion plans, will benefit from favorable demographics and rising disposable income, supported by high government spending. The company pays regular dividends on a quarterly basis (3.4 percent in 2015E).

Saudi Ground Services (SGS), with its long-term exclusive contracts with Saudia, and increasing fleet size will strongly benefit from its market positioning.

Although, SAFCO, a pure-play fertilizer company, paid lower dividends in 2014 (SAR 7 per share), Al Rajhi Capital believes a growth catalyst will be the start of commercial production— expected in Q2-15— at its SAFCO-V plant and expects a dividend of SAR 6.3 per share for 2015, implying a yield of 6.6 percent at the current market prices.