Bank of America Says $75 Billion Dividend Paid by Saudi Aramco Not Enough

Experts at Bank of America are saying despite Saudi Aramco paying the world’s largest annual dividend of $75 billion, the producing company may need to increase it to compete with other big oil firms.

Bloomberg quoted the bank’s experts as saying in a research note before Aramco released its second-quarter results on Sunday

They were quoted as saying, “Especially given that higher oil prices and OPEC+-driven production increases should support a significant free cash flow increase over the next couple of years.”

The analysts suggested that one option for the Saudi Oil Corporation was to maintain payouts for the government, which owns 98 per cent of its stock, but raise it for minority shareholders. Bloomberg reported that Aramco declined to comment.

The world’s biggest energy company had to turn to the debt market last year to help fund the dividend after its earnings plunged with the onset of the coronavirus pandemic. But oil prices have surged 40 per cent in 2021 to around $70 a barrel as major economies reopen.

The rise in demand has enabled the Organization of Petroleum Exporting Countries and its allies, led by Saudi Arabia and Russia, to ease output cuts they started early last year.

Firms such as BP Plc, Chevron Corp. and Royal Dutch Shell Plc are reportedly hiking share buybacks and payouts, confident the worst of COVID slump is over. Their goal, according to Bloomberg, is to woo investors who are becoming increasingly wary about the fossil-fuel industry.

The report said, “Aramco’s current payout lags that of its competitors in relative terms. Its indicated dividend yield is roughly four per cent, while BP, Chevron and Exxon Mobil Corp. all pay above five per cent.

“The Riyadh-based firm’s dividend is a crucial source of funding for the Saudi government, which is trying to narrow a budget deficit that widened to 12 per cent of gross domestic product last year.

“BofA expects Aramco made a net profit of $24bn in the second quarter, up 16 per cent from the previous three months and 258 per cent year-on-year. The bank forecasts that free cash flow will climb to $95bn this year and at an assumed oil price of $75 a barrel to $120bn in 2022.”