How Has Saudi Aramco's Dividend Stayed High?

Despite a 45% drop in profits, multinational petroleum and natural gas company Saudi Aramco has managed to maintain its dividend and pay shareholders a huge US$18.75 billion in the third-quarter of 2020. The Dhahran-based firm is one of the biggest revenue earners in the world, with the latest payout reflecting its incredible wealth.

While the quarterly dividend remained unchanged, the company suffered a huge hit to its bottom line between July and September. This was largely caused by the global slump in oil and gas demand triggered by the COVID-19 pandemic. The firm reported revenue of just US$$12.4 billion in the third quarter of 2020, marking a 45% drop from the US$20.6 billion recorded in 2019. As well as oil, the COVID-19 pandemic also devastated the company’s refining and chemicals arms. In contrast to the US$801 million profit reported last year, Saudi Aramco suffered a US$795 million loss.

Stakeholders payouts a top priority

Profits were not high enough to cover the dividend though this didn’t stop Saudi Aramco from paying out stakeholders. One of the key reasons Saudi Aramco is reluctant to adjust its dividend is the support it offers to the Saudi Arabian government. 98% of the company is owned by the Kingdom, with dividends serving as a critical source of cash. With the 2020 budget deficit set to increase to more than 10% of the Kingdom’s gross domestic product, a reduction in Saudi Aramco dividends could be devastating.

Saudi Aramco embracing “early signs of a recovery”

Analysts comment that while the oil and gas landscape is turbulent, global companies like Saudi Aramco have the strength to stay afloat. “Aramco covered the lion’s share of its dividend this quarter, which, given the macro environment at $42 a barrel and abysmal refining margins, is quite an accomplishment,” says Biraj Borkhataria, an analyst at the Royal Bank of Canada. “Every sign points to a belief within the company of further macro and oil recovery,” adds Alastair Syme, an analyst at Citigroup Inc. According to Syme, Saudi Aramco has the beefy balance sheet needed to support the company through the COVID-19 pandemic.

Saudi Aramco CEO Amin Nasser is optimistic, saying “We saw early signs of a recovery in the third quarter due to improved economic activity. We continue to adopt a disciplined and flexible approach to capital allocation in the face of market volatility.”

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