What can investors expect from Saudi Aramcoafter blockbuster secondary stock sale?

Vijay Valecha, Gulf News, June 20, 2024

Global investors have looked past the ongoing volatility in global oil markets and jumped on the secondary sale
offering from Aramco. The number one reason continues to be the lucrative dividend yield offered. As per the latest
estimates, the stock's annual cash dividend payout would come near the $120 billion range.

Percentage-wise, Aramco’s 6.6 per cent yield is one of the highest in this sector. This nearly matches what the
Italian energy company ENI Spa offers. The US and UK energy giants, including BP and Shell, have dividend yields
in the range of 3.9-4.6 per cent.

Another big plus when it comes to Aramco is the state-backed sovereign guarantee. Investing in oil company
shares is a matter of significant volatility as private entities often tend to reduce or clamp down on dividends
during times of turmoil. Likewise, these companies could also scale back on ambitious capex plans during sector
volatility.

With Aramco, the company is a critical base for the Saudi economy. Despite the ongoing diversification drive, the
company’s 2023 revenue was $440 billion, which makes up nearly 40 per cent of the Kingdom’s GDP. Due to its
criticality to the economy, the company would always see some incremental investment in capex and even on the
broader production capacity plans.

In such a scenario, investors should note that the overall energy market dynamics would cause a broader fall in stock prices for even the bigger energy players from the developed markets. Recently, Aramco set its July OSP for Asia at a premium of $2.4 to the Dubai/Oman average. This marked a nearly 50 cent decline in the June OSP premium.
One of the key positives for Aramco is the growth of the Kingdom’s non-oil economy. The non-oil economy, valued at nearly $453 billion in the latest 2023 figures, is almost on par with annual Aramco revenues. This growth is largely driven by the Kingdom's receipt of private sector investments worth $250 billion.
Further robust growth in the non-oil private economy would reduce the company's pressure to finance further expansion-driven expenditures, thus enhancing its long-term investment appeal.

Source

Gulf News