Would UAE investors like companies that offer quarterly dividends?

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TAQA, the largest utility company in Abu Dhabi, has thrown a clear sign with its intention to distribute quarterly profits. There are two other companies that offer semi-annual payments. Will more companies now follow this path?
Image Credit: Antonin Kélian Kallouche / Gulf News

Dubai: Abu Dhabi’s giant electricity and water company, TAQA, has done more than enough to satisfy its shareholders, not only by issuing dividends, but by promising to pay compensation every three months.

Will other listed companies follow the “TAQA” method to provide quarterly profits?

“At the moment, none of the other listed UAE companies are making quarterly dividends, with ADNOC Distribution and du paying semi-annual dividends,” said Vijay Valisha, chief investment officer at Century Financial. In the Saudi market, there are 14 companies that pay quarterly.

TAQA’s move reflects its increasing size and improvement in its financial file as a result of the historic deal it concluded in July with the Abu Dhabi Power Corporation. A regular dividend payment sends a clear and powerful message about the company’s prospects and performance. Their willingness and ability to pay steady dividends over time provide evidence of the financial strength and friendly management of shareholders.

“UAE and GCC stocks are strong from a profit distribution perspective due to the absence of a dividend tax, and as a result, dividend yields are an important criterion when selecting stocks on the shortlist.

The quarterly dividends will certainly be appreciated by income seeking investors and help diversify the investor base. This will improve the liquidity of stocks and drive prices. We expect more to follow suit. “

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Investors didn’t see much in the generous 2020 dividend, and the companies that dropped their aid struggled.
Image Credit: Gulf News Archive

Not impressed

Looking at it from another perspective, how do investors deal with companies that adhere to the annual dividend policy or cut their payments? Or worse, you don’t pay at all.

Dubai Islamic Bank shares fell for two days by more than 4 percent after cutting the full-year profit to 20 fils per share, down from 35 fils. The telecom company in Dubai was subjected to the same investor treatment, as it lost more than 5 percent of its value after deducting profits to 28 fils per share from 34 fils.

“Du posted 17 per cent less profit than the previous year, while at the same time reducing its dividend,” Valecha said. As a result, the shares were sold heavily, with the stock losing more than 6% in the past two weeks.

The district cooling giant, Tabreed, continued for four days because it was not generous enough with the shareholder payments, cutting its dividend nearly in half to 5.75 fils per share from 10.5 fils. The experience of Abu Dhabi Aviation was not different, as it declined in the trading session that followed its board of directors, which recommended a dividend of 10 percent, or half of the amount distributed a year ago.

Of course, other factors besides falling earnings add to the equity woes, such as modest earnings and uncertainty over what the future holds as the pandemic rages. But dividend payments are emerging as the dominant factor making or spoiling stock wealth early this year.

Be rewarded

Investors rushed to join the main lenders in the UAE – First Abu Dhabi Bank and Emirates NBD – after proving as generous in their dividends as they had been in the previous year despite recording lower profits for the whole year.

TAQA shares fluctuations

Abu Dhabi Power Company owns 98.6 percent of TAQA shares, leaving a fraction of the shares as free float for retail investors to choose.

They dropped the stock when TAQA’s board first announced its quarterly dividend plan in November, resulting in a four-day selling period that cost it more than 17 percent of its value. It faced a similar backlash when shareholders approved the proposal a month later.

Investors seem to get it this way – the policy aims to contribute regular money to government coffers. “Some (investors) believe that the possibility of having regular income increases the demand for the company’s shares,” said Anita Yadav of Global Credit Advisors. “Others believe that spending cash at the present time reduces the company’s future growth potential and thus makes it less attractive to an investor.”

Exceptions too

But Abu Dhabi Commercial Bank made gains for the next three days despite reducing dividends to 0.27 dirhams from 0.38 dirhams per share, which is very different from the way investors have handled stocks by cutting payments. So what is on the mind of investors while choosing stocks for their investments?

Anita Yadav, CEO of Global Credit Advisory said, “The greater the risk aversion the dividend-paying stocks will be preferred by risk-averse investors while companies with higher potential for capital earning in the future.

Who will give the best 2021 dividend yield?

Vijay Valesha, chief investment officer at Century Financial, said, “The 2021 DFM dividend yield growth is expected to reach 3.5 percent with bank stocks expected to lead the group.” Mashreq Bank (5.90 percent) and Emirates NBD Bank (3.67 percent) are expected to lead the income basket.

Among the non-bank entities, Du (4 percent) and Aramex (3.78 percent) are expected to generate income gains for investors.

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