BofA Says Aramco Dividend Not Enough | Rigzone
(Bloomberg) – Saudi Aramco’s $ 75 billion annual dividend is already the largest in the world, but the oil producer may need to increase it to keep up with its peers, according to Bank of America.
“An increase in dividends is needed to stay competitive,” BofA analysts led by Karen Kostanian said in a research note, ahead of the company’s second quarter results on Sunday. “Especially since the rise in oil prices and the production increases induced by OPEC + are expected to support a significant increase in free cash flow over the next two years.”
Analysts said one option is for Aramco to keep the payment unchanged for the government, which owns 98% of the shares, but to increase it for minority shareholders.
Aramco declined to comment.
The world’s largest energy company had to turn to the debt market last year to help fund the dividend after its profits plummeted with the onset of the coronavirus pandemic. But oil prices have jumped 40% in 2021 to around $ 70 a barrel as major economies reopen. The increase in demand has enabled the Organization of the Petroleum Exporting Countries and its allies – a group known as OPEC + and led by Saudi Arabia and Russia – to ease production cuts that ‘they started early last year.
Companies such as BP Plc, Chevron Corp. and Royal Dutch Shell Plc are increasing share buybacks and payouts, convinced the worst of the Covid crisis is over. Their aim is to win over investors who are increasingly wary of the fossil fuel industry.
Aramco’s current payout is lower than its competitors in relative terms. Its stated dividend yield is around 4%, while BP, Chevron and Exxon Mobil Corp. all pay more than 5%.
The dividend from the Riyadh-based company is a crucial source of funding for the Saudi government, which is trying to reduce a budget deficit that widened to 12% of gross domestic product last year.
BofA expects Aramco to have net profit of $ 24 billion in the second quarter, up 16% from the previous three months and 258% year-on-year. The bank forecasts free cash flow to climb to $ 95 billion this year and – at an assumed oil price of $ 75 per barrel – to $ 120 billion in 2022.
–With help from Lukas Strobl and Salma El Wardany.
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