Saudi Aramco May Need Big Changes to Keep Dividend Pledge

Barron's • Craig Mellow • 08/27/2020

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It’s easy to forget that Saudi Arabian Oil is the No. 2 company in the world by market capitalization, (No. 1 until Apple’s recent surge), and a stand-out performer in its industry. Shares in the crude oil colossus have gained 9% since its IPO last December. The iShares Global Energy exchange-traded fund (IXC) has crashed almost 40% during that time.
There are reasons Aramco (2222.Saudi Arabia) flies below most investors’ radar. Failure to list on a Western exchange left 98.5% of the company still in state hands, and most of the remaining smidgen is owned by other Saudis. So liquidity and share movements depend as much on administrative fiat as market sentiment. But the Kingdom seems to be running it to minority shareholders’ benefit, putting a floor under the price while maintaining a juicy dividend that currently equates to a yield around 4% annually. That’s not the worst option in a zero-yield world.
When Aramco came to market 10 long months ago, it laid down three strategic pillars. It aimed for massive investment in Asian refineries, to lock in markets for its 10 million-or-so barrels of daily crude production. But it promised to pay for that out of profits, limiting debt to 15% of equity, and while shelling out $75 billion a year in dividends. This all assumed world oil prices at $60 a barrel, not their current level around $45.