Shares in Abu Dhabi based ADNOC Distribution rose sharply in early trading on Sunday as investors reacted to a move announced late last week to introduce a new dividend policy.
The shareholders of the fuel distribution arm of Abu Dhabi National Oil Company, approved on Thursday a 63 percent increase in the company’s annual dividend for the fiscal year 2019 to 2.39 billion dirhams ($650 million), or 0.1910 dirhams per share.
Issam Kassabieh, senior financial analyst at Menacorp Financial Services, told Zawya by email that the new dividend policy “is a progressive policy that allows for significant dividend growth and added value for shareholders”.
The company intends to pay dividends twice each fiscal year, it said in a statement to the exchange. Half of the dividend for the fiscal year 2019 is expected to be paid in October 2019 and the remaining half in April 2020.
The dividend for the fiscal year 2020 will increase by 75 percent to 2.57 billion dirhams, equivalent to 0.2057 dirhams per share, with half of the payment being made in October 2020 and the remainder in April 2021.
“For businesses that are in key defensive sectors especially such as ADNOC, investors could find it difficult to find gains in stock appreciation as a result of the capex possibly involved in growing the business,” Kassabieh said.
“However as profits grow and management allows itself more time to decide on new strategic horizons, dividends are a clear way to keep pushing value towards shareholders,” he added.
ADNOC Distribution’s shares rose 8.8 percent by 13:01 GST and have increased by 17.24 percent so far this year.
“Also in the growing merger and acquisition realm taking place now in the region, an attractive valuation could be really advantageous,” Kassabieh ended.
The company’s shareholders have also approved a plan, subject to obtaining the necessary regulatory approvals, to buy back up to 62.5 million of the company’s shares.
(Reporting by Gerard Aoun; Editing by Michael Fahy)
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