Gulf markets still pay healthy dividends

12/03/2011 00:00 AST

Investors can still find companies in the region that are paying healthy dividends this year, even as the global recovery remains in a sluggish mode.

In fact the dividend yield — the ratio of payouts to share prices — of the region continue to be higher than some of the world's major markets.

MSCI Gulf index's dividend yield of 3.32 per cent of 2010 was above MSCI emerging markets' 2.22 per cent and also, that of S&P500 Index of 1.87 per cent and Dow Jones Industrial Average of 2.41 per cent (see table).

The Dubai Financial Market (DFM) is expected to have a dividend rate of 4.44 per cent, a jump of more than one per cent from 2010 and likely to be the highest in the region this year. Qatar and Saudi Arabia come next with estimated yields of 4.26 per cent and 3.76 per cent respectively in 2011.

And some of the mature companies that have been least impacted by the global economic crisis, mainly in the telecom, cement and consumer (also known as retail) sectors, the so-called defensives, continue to lead in distribution.

According to Shuaa Capital's latest Equity Research GCC Strategy Note released on Wednesday, their list of 14 defensive stocks under the Shuaa yield screener, the aggregate dividend yield of 7.5 per cent will be earned in cash in the short term.

That's a yield improvement of 50 per cent over last year (2009), when the aggregate rate of their dividend list was 5 per cent, according to Amer Halawi, managing director and head of research at the Dubai-based investment bank. "From a defensive perspective, investors should be getting back nearly 10 per cent of their investment in less than trimester, while keeping the full equity upside," the report adds. (See box for Shuaa's screener and allocations).

As analysts point out, investors should be realistic in their expectations and be able to differentiate between companies, rather than penalising companies which do not meet their expectations.

Investors should not expect a company with debt servicing problems and cash flow difficulties to pay dividends, says Samer Darwiche, financial analyst with hedge fund firm Gulfmena Alternative Investments, Dubai. "Core shareholders and management must eye company's survival and focus on core business operations to meet obligations. Any returns should be reinvested to bring back the company on a healthy track."

Position in the market
However, investors should make a distinction between companies, says Taher Saffieddine, lead analyst at CAPM Investment, Abu Dhabi. As he says, there are growth companies that are still young and working towards consolidating their position in the market. "To distribute dividends or not, our view depends on the type of the company," Saffieddine says. "For us, if the company is a growth type, we would like it to retain cash for operations to enhance its growth prospects and thus not pay out dividends (example of Drake & Scull International in the UAE). On the other hand, we have some mature companies that we expect to pay out dividends as a reward for shareholders. This includes companies like etisalat [which is not open to foreign investors], Saudi Telecom, Sabic, Industries Qatar, Safco, Commercial Bank of Qatar among others."

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