Dividends and Saudi Aramco becomes world’s most valuable company

In mid December the Saudi government finally allowed Saudi Aramco to trade on a stock exchange which resulted in the company becoming the world’s most valuable company at $2 trillion. The math is simply take the number of shares outstanding multiply by the price at the stock exchange and in this case it is a very good number. Saudi Aramco owns the oil in Saudi Arabia and it is still very inexpensive to bring the oil to the surface. The world’s most valuable company is also the world’s most profitable company.

In an article by Marwa Rashad, Stephen Kalin, and Saeed Azhar of Reuters, the IPO of raised $25.6 billion for the government. Most of the money from the listing comes from the Gulf and that is why the shares are listed on the Tadawul exchange in Riyadh and instead of 5% of the company being sold only 1.5% was sold. Aramco is valued 6 times as Exxon Mobil.

Although very profitable, anyone who bought Aramco is a positive on the price of oil moving upwards, but forecasts suggest after 2025 the demand for oil will decline due to actions regarding climate change.

Similar to governments around the world when they privatize a part of their assets, the government intends to use the proceeds on domestic projects.

Linking to dividend paying stocks, one of the reasons why the Saudi Aramco should be on your radar to invest in either indirectly or directly is the profitability factor. The cost of production is very low relative to other companies around the world. Saudi Arabia still has some giant oil pools that continue to allow oil to flow at low cost. It is hard for management not to make a profit. Similar to every semi privatized company, until the government of the day has less than 50% of the shares or no longer controls the company, the management serves two masters – politicians and investors. Sometimes they work very well together, sometimes they do not. Beware of the constraints of management.

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

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