Saudi Aramco, the world’s leading oil company, reported a 3.4% decline in second-quarter profit due to reduced crude volumes and softer refining margins. Despite this, the company maintained its dividend payout at $31.1 billion for the quarter, highlighting its commitment to shareholders.
Consistent Dividend Policy Amid Market Challenges
Aramco announced a net income of 109.01 billion riyals ($29.03 billion) for the second quarter, exceeding analysts’ estimates of $27.7 billion. The company’s dividend policy remains generous, with $10.8 billion in performance-linked payouts included in the total dividend. This approach, introduced last year, supplements a base dividend paid regardless of results, an uncommon practice among listed firms.
As a crucial income source for Saudi Arabia, Aramco’s financial health is vital for the kingdom’s economic plans, including Crown Prince Mohammed bin Salman’s Vision 2030 initiative aimed at diversifying the economy away from oil dependency. The consistent dividend payouts help transfer oil revenue to the government, limiting the fiscal deficit, according to ADCB’s chief economist Monica Malik.
Capital Expenditure and Market Dynamics
Aramco’s capital expenditure rose by nearly 14% year-on-year to $12.1 billion in the second quarter. This increase is partly due to investments aimed at maintaining the company’s maximum sustainable crude capacity of 12 million barrels per day and expanding its gas business. Currently, Saudi Arabia, leading the OPEC, is producing around 9 million barrels per day, a significant cut from its full capacity, as part of OPEC+ agreements.
Despite these efforts, Brent crude prices have been trading at their lowest since January, around $76.7 per barrel, due to global economic growth concerns. This has impacted Aramco’s stock, which has fallen about 17% this year, underperforming compared to Western oil majors.
Aramco’s recent $6 billion bond sale was aimed at reestablishing its presence in the debt market rather than funding specific projects. This move reflects the broader trend of Saudi entities, including the government and the Public Investment Fund (PIF), raising substantial capital in global markets to support various initiatives.
Outlook and Future Plans
Aramco anticipates total dividends of $124.2 billion for 2024, aligning with its previous guidance. The performance-linked dividends for this year cover the 2022-2023 period, calculated as 50-70% of annual free cash flow after the base dividend. For 2025, these payouts will be based solely on 2024’s results.
The Saudi government remains a significant beneficiary of Aramco’s dividends, holding nearly 81.5% of the company after selling a 0.7% stake for $12.35 billion last month. The PIF holds an additional 16%, benefiting from the steady dividend inflow.
Monica Malik highlighted that the government has multiple avenues to extract funds from Aramco, including further share sales. As the company continues to navigate market challenges, its strategic investments and dividend policies play a critical role in supporting Saudi Arabia’s economic ambitions.
Source: Reuters
