Dubai: Dewa's dividends will be consistent on strong cash flows

Dubai Electricity and Water Authority (Dewa) has a solid balance sheet and ability to generate strong cash flows from its operations to ensure dividends for next five years, experts say.

Andrew Tarbuck, partner, head of Capital Markets at Al Tamimi & Company, said Dewa’s dividend plans for next five years are an attractive aspect to its IPO and there is every optimism that dividend flow will be consistent year on year but, as always, this will depend on the distributable profits at each year end.

Dewa expects to pay a minimum annual dividend of Dh6.2 billion ($1.69 billion) over the next five years, starting in October 2022. Earlier this month, the power utility said dividends would be shared with the shareholders twice a year in April and October.

“The group had a net income of Dh6.6 billion ($1.8 billion) in 2021 with a net income margin of 27.5 per cent, which is stellar for a utility company,” according to an analyst.

“Dewa is the sole provider of electricity, water and the leading provider of district cooling in Dubai, with strong top-line revenues of Dh23.8 billion last year, reflecting a CAGR (2019-2021) of two per cent,” he said.

Dividend policy to benefit shareholders

Sajeer Babu, portfolio manager at Entrust Capital, said Dewa has a solid balance sheet and the ability to generate strong cash flows from its operations, and its dividend policy is designed after taking those factors into consideration, including its future earning potential of the company.

“The IPO price range implies a dividend yield of five per cent to 5.5 per cent based on the previously announced dividend policy of Dewa which, in our opinion, is very attractive to investors given that most of the listed securities on DFM, including banks and other blue-chip companies today offer a dividend yield much lower than that,” Babu told Khaleej Times.

“The company offers dividend income for investor for the next five years through its announced dividend policy which makes the IPO very attractive for investors those who are looking for steady and stable income from their investments,” he said.

Another analyst said guaranteed dividends are unlikely to impact the balance sheet since Dewa has strong pricing power, which gives it category-leading profit margins.

“The pricing power comes from the fact that it is a monopoly in Dubai, and it enjoys vast economies of scale. The median net profit margin for major American companies is 14 per cent, whereas for Dewa, it is 27.5 per cent. This number means Dewa will continue to have a rock-solid balance sheet,” he said.

Dewa ratings affirmed

Moody’s Investors Service affirmed Dewa ratings following the company’s IPO announcement on March 24 and said the outlook on all ratings remains stable.

The rating agency affirmed Dewa’s Baa2 long-term issuer ratings and baa2 Baseline Credit Assessment and said the listing will improve Dewa's disclosures and oversight and could lead to a more stable financial policy over time if the company adopts clear financial targets or commits to a given rating level.

— muzaffarrizvi@khaleejtimes.com