Petchem firms may reconsider dividend policies: Analysts

One of Saudi Basic Industries Corp. (SABIC) Factory

Saudi Basic Industries Corp. (SABIC) and SABIC Agri-Nutrients Co. (SABIC AN) have decided to change their policies for to the board of directors’ decisions on interim dividend payments as of 2025, provided approval of their ordinary general meetings (OGMs).

Analysts surveyed by Argaam expected this step to prompt other petrochemical players to revisit their dividend distribution policies, especially if similar challenges are being endured. They believe these companies may seek to achieve a balance between rewarding shareholders and maintaining the liquidity needed to mitigate market volatility.

The analysts also indicated that given that SABIC is deemed one of the market heavyweights, its policies have a direct impact on the sector.

New dividend policy:

Hussain Al-Attas, a financial analyst

In December 2024, SABIC’s board of directors announced the distribution of a 17% cash dividend, or SAR 1.7 per share, for H2 2024. Thus, the full-year dividends amounted to SAR 3.4 per share, representing 34% of capital, Hussain Al-Attas, a financial analyst, said.

Meanwhile, SABIC AN 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, Al-Attas added.

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 shareholders of record at the beginning of 2025.

He added that SABIC AN announced the distribution of SAR 3 per share for H2 2024, in addition to similar distributions for H1 2024. This brought the full-year dividend paymeng to SAR 6 per share.

Reasons for the policy change:

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

As for SABIC AN, Al-Attas underlined that the generous dividends could indicate strong financial performance and a will to reward shareholders, in addition to enhancing the stock’s attractiveness.

Suleiman Al-Khalidi, economic expert, analyst of capital markets, and member of Saudi Economic Association

Elsewhere, 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 reflected the strength and stability of the two Tadawul-listed companies in the Saudi market.

He expected these dividends to help bolster investor confidence and support the stock’s long-term performance.

Hajjaj Hassan, Head of Argaam Plus

Hajjaj Hassan, Head of Argaam Plus, said SABIC's new cash dividend policy, which matched the approach of its new owner, Aramco, reassured the company's investors and sector players in general. It also underpinned the strength and resilience of the financial positions of SABIC and its subsidiaries, not to mention reflecting the sector’s optimistic future.

Stock performance:

Al-Khalidi explained that SABIC AN’s stock has witnessed significant movements in recent years. This is because its stock price peaked at SAR 209 before falling to SAR 103, then rebounding to SAR 111 a share after the recent dividend policy announcement.

As for SABIC, it is currently enduring challenges related to high debt, with its capital amounting to SAR 20 billion, he said, adding that analysts believe that the management should take strategic steps such as mergers and acquisitions to spur performance and productivity.

Meanwhile, Argaam’s Hassan pointed out that SABIC has distributed the equivalent of SAR 76 per share in the last 20 years. Factoring in its capital increases through bonus or right issues, the company distributed more than seven times its stock nominal value.

Impacts of such changes on the petrochemical sector as a whole:

According to Al-Attas, SABIC is deemed one of the petrochemical sector’s heavyweights. Therefore, its policies have a direct impact on the market.

The company's continued distribution of dividends, despite the challenges, may prompt other sector companies to adopt similar policies to maintain investor confidence. However, each company's capacity 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 AN demonstrates greater flexibility in its dividend distribution policy, which ultimately underscores its position as a reliable yield source for investors.

Elsewhere, Hassan said the Saudi petrochemical sector is deemed one of oldest in history and is heavily backed by the government through feedstock prices, compared with its regional counterparts. He pointed to the strong ties between petrochemical players and yield investors, especially since most industry players were making generous dividend distributions to their shareholders, most notably SABIC, which maintained dividend payments for the past 20 years.

“However, it is eventually a cyclical sector that is fully linked to the economic cycle and the global economy. Also, 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. Accordingly, we are expected to witness growth in companies' profits in the short and medium term,” he continued.

The possibility of other companies following suit:

Al-Attas said that other petrochemical players are likely to follow suit and revisit their dividend distribution policies, especially if they face similar challenges. These companies may seek to achieve a balance between rewarding shareholders and maintaining the liquidity needed to mitigate market fluctuations.

SABIC's commitment to dividend payment strengthens its position while prompting other players to follow in its footsteps:

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

This approach may affect the dividend policies of other petrochemical companies. It also reinforces the importance of achieving a balance between rewarding shareholders and maintaining healthy financials amid volatile market conditions, he added.

For his part, Al-Khalidi pointed out that these decisions reflected the commitment of SABIC and SABIC AN toward supporting shareholders' interests and maintain growth in the face of global challenges, therefore underpinning their positions as two core pillars of the Saudi economy and the local petrochemical sector.