2015 ended up as one of the biggest disappointing years for regional and global equity investors. While many stock markets in the Gulf region struggled to live up to expectations, there is however a silver lining for investors in these volatile times — high dividend yield. As the sell-off in markets drove stock prices down it also pushed up dividend yields of stocks, making them attractive investments.
According to a report by Marmore MENA Intelligence (www.e-marmore.com), a research house specialized in MENA economies and business issues with the focus on providing actionable solutions, most of the companies that have paid out high dividends during 2011 to 2015 in UAE belong to the insurance and banking sector. The report, shared exclusively with Wealth Monitor, says that Air Arabia, du and Ras Al Khaimah Ceramics are the only exceptions. Majority of the top dividend yielding companies are small and large cap companies. Contrary to the stocks in UAE, most of the top dividend yield stocks in KSA are large cap. The following two Tables lists the top 20 stocks with the highest dividend yields in the UAE as well as KSA, between 2011 and 2015.
“The KSA and UAE listed companies were mostly sitting on high cash balances, with underleveraged balance sheets, that helped them have high dividend payout ratios. For instance, the average payout ratio of top dividend paying stocks of KSA and USE was 85% and 74% respectively between 2011 and 2015,” M.R. Raghu, Managing Director, Marmore MENA Intelligence, told Wealth Monitor. For the uninitiated, while dividend is the part of net income a company decides to pay out to its investors, dividend yield shows the amount of cash dividends a company pays out to its shareholders relative to the market value per share. Represented as a percentage, dividend yield is calculated by dividing the cash dividends per share by the market value per share. As the stock price goes up, the dividend yield goes down. Similarly, when the stock price plummets, the dividend yield moves higher.
But should you be buying stocks just to cash in on the dividend? Watch out for dividend traps, caution experts! While in uncertain and volatile times, it may be a good idea to pile up stocks that pay steady dividends, a high dividend yield alone doesn’t make a stock a great investment, always. As an investor one needs to also look at consistency of dividends and the fundamentals of the company. Secondly, experts advise caution before investing in high dividend-yielding stocks since they could lure the unwary investor to arbitrarily over-buy stocks. As evidence from major world stock markets suggest, while stocks with high dividend yield are considered safe and also indicates that the company is sharing profits with investors, consider multiple metrics before making any investment decision. Apart from the consistency and fundamentals, one can consider factors such the market cap of the company, the company’s earnings, P/E ratio, and dividend payout ratio. And last but not the least, it’s always a good idea to consult with experts before investing.
The Article originally published in Wealth Monitor.