Dividends and Saudi Arabia formally begins the IPO process for state-run oil company

In 2016, The kingdom of Saudi Arabia announced it was going to share some of its investments with the general public in terms of bringing to the public markets the state run Saudi Aramco. For a variety of reasons, there has been delays, but the plan is to go ahead.

In an article by Jon Gambrell and Malak Harb of the Associated Press, the kingdom’s Capital Market Authority announced its approval for the share sale offered on Riyadh’s Tadawul stock exchange. The stock exchanges of the world were expecting the announcement to include one of them, but that may happen in the future. In 2016, the offering was to be the world’s largest IPO.

The reason why institutional investors are looking forward to the offering is in 2018, the company had a net income of $111.1 billion and proven liquid reserves of 226.8 billion barrels. Its net income of 2019 for the 3rd quarter was $68 billion.

The kingdom was hoping for a $2 trillion valuation for the shares which would bring in $100 billion to the treasury. It may be less. December 11 is when the shares are expected to begin trading.

Linking to dividend paying stocks, once the shares trade outside Riyadh it will be a shares which you can own for a long time. The company pays nothing for the land, it is government land, there are limited public opposition to refineries and pipelines, and the oil is still easy to drill, relative to fracking in the US or the costs are low. There are questions about its biggest oil field, but the company is a cash generator, which makes dividend payments because the government uses them as taxes, the amount given is expected to increase yearly. The stock has all the elements of a great buy and hold stock.

There are more questions than answers, till the next time – to raising questions.

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