Blue chip dividend yields in UAE beat US and Europe

• Returns up to 60% better
• Extensive research needed
• Returns must be sustainable

Most UAE blue chip stocks provide much higher dividend yields than their counterparts in Europe and the United States, an AGBI analysis shows.

The top 20 largest listed UAE businesses, excluding two non-dividend paying companies, offer an average dividend yield of 4.7 percent. 

This is almost 60 percent better than the average yield of 1.9 percent for the 30 companies in the Dow Jones Industrial Average index, 43 percent better than the average 2.7 percent on the Euro Stoxx 50 and 26 percent better than the average 3.5 percent on the London FTSE 100.

Long-only equity investors usually buy stocks with two aims: to sell the stock at a higher price and to earn dividends. High-growth companies in cyclical sectors tend to have greater potential for share price gains, while longer-established businesses in steady industries such as power and water are usually safer bets for dividends.

The UAE sectors that come first to mind for dividends are banks and utilities, “which are both industries focused on providing high payout ratios and with little current need for major capital expenditure to expand earnings,” says Marwan Shurrab, chief commercial officer at xCube, a Dubai fintech, and a 20-year veteran of the UAE’s asset management industry.

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Mashreq, a Dubai bank, is the standout among blue chip stocks, offering a yield of 8.1 percent, data from Simply Wall Street shows. Emaar Properties’ yield is 7 percent, its stock having surged since the developer announced in December that it would double its annual payout.

Among 20 of the largest listed companies by market capitalisation, Abu Dhabi National Energy Company (Taqa) provides a paltry dividend yield of 1.3 percent and trades at a hefty price-to-earnings ratio of 46.

Investors prioritising dividends should target companies with explicit dividend policies, such as a commitment to pay out a certain percentage of net profit or free cash flow or to increase dividends annually by a specific percentage, says Ahmed Kamal, portfolio manager at Azimut Middle East in Dubai.

Also worth considering are companies that may not have published a specific dividend policy, but onetheless have a good record of distributing “say 60 to 70 percent of net profit on a consistent basis”, Kamal says.

However, “identifying such companies requires extensive, granular research,” he warns.

A rapid rise in interest rates from near-zero in early 2022 to a 24-year peak of 5.3 percent in mid-2023 diminished the allure of investing in UAE companies for their dividends, because investors could earn a similar return through term deposits at banks. However, subsequent rate cuts totalling 1 percentage point have again boosted the appeal of such companies, Kamal says.

“We’ve seen strong interest in dividend-paying companies in telecoms, real estate and banking,” he says.

Three of the four highest yielding UAE stocks have a market capitalisation of less than $500 million, an analysis by AGBI reveals, while Mashreq is the only blue-chip stock to make the top 10 in terms of dividend yield.

However, investors should be wary of buying these lesser names, Kamal says.

“There’s a risk embedded in investing in these companies. They rarely have proper disclosure policies, earning presentations, proper analyst calls or sell-side analyst coverage,” he says.

“They might have decent dividend track records, but their profitability may vary greatly from one year to the next, and it’s tough to get sufficient visibility on their future earnings.

“It’s important that dividends are sustainable, and you can’t judge that without doing due diligence on these companies. Low disclosure levels make that difficult. It’s why institutions tend not to invest in small-cap stocks.”