UAE companies offer attractive dividend yields for long term investors
Published: 18:26 February 27, 2016
Dubai: Despite a slowdown in the UAE, companies have been offering attractive dividend yields, and analysts are urging the long-term investors to participate as companies prepare for tough quarters ahead.
On the back of companies offering dividends yields of up to 9 per cent, the Dubai index, which was one of the worst performer in the region earlier till last month, recovered to trade almost flat on Thursday.
“The high dividends from the banking sector has helped attract local liquidity back in the market, and helped recovering a lot of losses since the beginning of the year. This will also help the markets to break the co-relation with oil that we saw since the beginning of the year, And now we have yields of 6-8 per cent and this would also encourage those investors to hold the shares which will take place between now and April,” Mohammad Ali Yasin, managing director at NBAD Securities told Gulf News.
“Dividend is a good play for investors who are long term holders. If you are a long-term investor with a 1-3 years of horizon, dividend is a great play for you. It would give a good return than any other investments. Investors should not worry about daily movements. I think playing the dividend yield would be a great story provided they don’t borrow,” Yasin said.
Even Muhammad Shabbir, head of equity funds & portfolios at Rasmala agreed with Yasin’s view.
“We are strong believers in dividend-paying companies. We are investing in companies which have announced good dividends and they have capacity to increase their dividend, we are investing in them,” Shabbir said.
However this positive sentiment is expected to last till first week of April when companies start publishing their first quarter results.
“This better sentiment could last for a few more weeks and or just before March end because from April we would see first quarter results, and some companies may not be able to maintain the growth in the first quarter compared to growth registered in 2015. Some companies have squeezed all the profit that they can do in the fourth quarter. So first quarter may be able to sustain those high level of profit. And this would lead to the slowdown of positive momentum,” said NBAD’s Yasin.
Most of the companies in the UAE posted a fall in net profit in 2015, with some companies registering deeper losses like Arabtec. Going forward, government officials have warned of a challenging 2016.
UAE’s economy is expected to grow at a rate of 3-3.5 per cent in 2016, according to Sultan Al Mansouri, the country’s Minister of Economy. “It’s a challenge, not only for us but for everyone around the world, so it will all depend on the prices of oil as we move on,” the minister said at a conference in Abu Dhabi on Thursday, referring to oil prices.
“Investors should selectively go in high dividend paying stocks like Aldar Properties, Dubai Islamic Bank, and to get into stocks, which have been beaten up in the last few weeks. If oil prices stabilise at these levels, market would be up for a good level. Banks are well beaten up, financial services stocks, material stocks offer good value to current valuations,” Rasmala’s Shabbir said.
UAE stocks have been battered due to more than 50 per cent fall in prices of crude oil, but analysts are seeing this as an opportunity to get in blue chip stocks for attractive prices.
“UAE markets is 10-10.5 average price to earnings ratio, compared that to 13-14 in the emerging markets. Saudi is a little more expensive than the UAE, and Qatar is somewhere in the middle. Any stability in oil prices would help limit the downside, and that would mean investors concentrating on the performance of the companies,” Yasin said.
But Hisham Khairy, head of institutional equities is advising to be more cautious.
“I don’t really recommend rushing into any buying at the moment things globally aren’t looking great and fundamentals that caused the recent sell-off haven’t changed, we have lot of central banks meetings next month so volatility is expected to be on the rise, speculators can go ahead and trade the market but medium to long term buyers in my view would be better on the sidelines,” Khairy said.