Saudi Aramco will have to raise its already massive annual dividend of $75 billion if it wants to remain competitive with other oil giants and raise its dividend yield to the average for international oil majors, Bank of America said in a note carried by Bloomberg.
Despite the fact that it is the world’s largest, the Saudi oil giant’s dividend needs to be even higher if Aramco wants to have a dividend yield at least at the level of international oil giants. ExxonMobil, Chevron, and BP, for example, each have a dividend yield of over 5 percent, while Aramco’s is around 4 percent, Bloomberg notes.
“A dividend increase is needed to stay competitive,” BofA analysts led by Karen Kostanian wrote in a note carried by Bloomberg.
“Especially given that higher oil prices and OPEC+-driven production increases should support a significant free cash flow increase over the next couple of years,” BofA said.
Companies such as BP and Shell raised dividends after reporting strong earnings for the second quarter of 2021, driven by higher oil prices. BP, Shell, and U.S. Chevron also announced share repurchases as they try to reward shareholders more amid a growing backlash against the oil industry.
Saudi Aramco has been looking to raise funds in order to pay its massive dividend without compromising its balance sheet too much. The Saudi oil giant also aims to reduce its debt load that had swelled after the acquisition of local chemicals giant Sabic and the collapse in oil prices last year.
Aramco is reporting its Q2 results on Sunday, August 8, with BofA expecting the Saudi oil firm to book a net profit of $24 billion, up by 16 percent from Q1 and up 258 percent compared to the second quarter of 2020 when oil prices crashed. BofA also sees Aramco boosting its free cash flow to a total of
$95 billion for 2021 and to $120 billion in 2022, at $75 a barrel oil.
By Tsvetana Paraskova for Oilprice.com
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