UAE dividend payouts grow at double-digit pace to hit new record

Dividends paid out by the UAE’s leading listed companies grew at a double-digit rate to a record last year – and they are expected to do the same in the current year.

Research by the Dubai-based investment bank Arqaam Capital shows that the payouts have grown each year since 2010 as the country’s economy recovered from the global economic crisis.

Money managers say the big payouts are a sign that companies and banks are not worried that the drop in the price of oil, a key component of economic growth in this part of the world, and regional political turbulence will dent earnings too badly.

“The healthy dividends being paid by regional corporates indicate confidence in the long-term growth potential of the region and in non-oil sectors in particular,” said Bassel Khatoun, the Dubai-based head of Middle East and North Africa Equities at Franklin Templeton Investments. “Non-oil growth in the GCC is still expected to exceed 5 per cent in 2015.”

“Many of the region’s corporates are currently sitting on high cash balances, with underleveraged balance sheets, that provide further upside potential to dividend payout ratios,” he added.

The total amount of dividends paid by UAE companies grew 11 per cent in 2014 to Dh28.7 billion from Dh26.2bn in 2013, and are forecast to grow at a similar rate this year to Dh31.9bn, according to data compiled by Arqaam. Each year’s dividend is typically paid out the following year. The data represents 95 per cent of total listed companies in the UAE and excludes the special Dh9bn dividend paid out by the property developer Emaar after selling its retail business Emaar Malls Group.

Despite the profitability of UAE companies and banks, the nation’s benchmark indexes have yet to recover from the equities sell-off in the fourth quarter of last year. Stocks in the Arabian Gulf took a hammering in December as the price of crude oil plummeted more than 30 per cent, with many equity indexes including Dubai’s dropping just as much before making a partial recovery. As a result, Dubai’s main gauge pared its 2014 gains to 12 per cent and so far this year has dropped 7.9 per cent.

Still, despite the downgrades in economic growth forecasts, analysts are upbeat about corporate profitability, and among the highest dividend payers are the banks. FGB, which was the most profitable bank in 2014, distributed Dh3.9bn on its 2014 earnings and is expected to pay out the same amount next year, according to Arqaam data.

The Egyptian investment bank EFG Hermes said in a report last week that the indicated yield on UAE bank shares in 2015 is expected to be 5.5 per cent compared with 4.7 per cent in 2014, while the price to earnings ratios, a measure of value, is 8.9 for the banks this year versus 10.3 for 2014. Typically the lower the p/e ratio, the more value there is in an equity.

Among the highest yielders are Abu Dhabi Commercial Bank, with an expected yield 8.2 per cent in 2015, followed by Dubai Islamic Bank with 7.8 per cent, then FGB with 7.4 per cent. The Ras Al Khaimah-based lender RAKBank is among other banks that has yields of over 5 per cent.

In recent years, the banks have distributed about half their profit and are expected to continue doing so.

“The payouts of the UAE banks should remain at about 50 per cent as banks are bolstering their capital base through the issuance of Basel III compliant hybrid bonds,” said Jaap Meijer, the head of financial services research at Arqaam.

“Given relatively tight credit spreads, these instruments are attractive for the banks, allowing them to bolster their capital positions and continue fairly high dividends to their shareholders.”

mkassem@thenational.aeFollow The National's Business section on Twitter