Etihad Etisalat's (Mobily) Rising Dividend Yields and Financial Performance: A Sustainable High-Yield Play in the Saudi Telecom Sector?

The Saudi telecom sector is at a pivotal inflection point, driven by Vision 2030's push for digital modernization, the rapid rollout of 5G, and a regulatory environment that fosters competition. Among the key players, Etihad Etisalat (Mobily) has emerged as a compelling case study in balancing growth, stability, and shareholder returns. With a trailing twelve-month (TTM) dividend yield of 3.99% as of July 2025 and a projected yield of 6.0% over the next three years, Mobily (stock symbol: 7020.SR) is increasingly being scrutinized as a high-yield, stable income stock. But does its financial performance and strategic positioning justify such optimism?

Dividend Trends: Volatility with a Rising Trajectory

Mobily's dividend history over the past decade reveals a mix of volatility and resilience. After a sharp 44.68% drop in 2025 from SAR 0.63 to SAR 0.35 per share, the company's adjusted dividend payments have shown a long-term upward trend. From 2020 to 2024, dividends nearly doubled, with a 104.35% surge in 2024 alone. This volatility, while concerning for risk-averse investors, reflects Mobily's willingness to adjust payouts in alignment with its capital allocation priorities.

What stands out is the company's ability to maintain a consistent dividend yield relative to its peers. While Saudi Telecom Company (STC, 2010.SR) and Zain KSA (ZAIN.KW) have historically offered higher yields (STC's 2025 yield is estimated at 7.73%, per historical data), Mobily's 4.7% yield as of 2025 places it comfortably above the bottom 25% of Saudi dividend payers. Analysts project this gap will narrow further, with Mobily's yield potentially reaching 6.0% by 2028, suggesting a strategic shift toward rewarding shareholders.

Financial Health: Conservative Leverage and Strong Free Cash Flow

Mobily's balance sheet and cash flow metrics reinforce its appeal as a stable income stock. As of December 2024, its debt-to-equity ratio stood at 1.04, slightly above 1 but indicative of a manageable leverage profile. This compares favorably to STC's 1.07 ratio, suggesting Mobily is slightly more aggressive in financing growth while maintaining flexibility.

Free cash flow, a critical metric for dividend sustainability, has also been robust. In 2024, Mobily generated SAR 4.38 billion in free cash flow (calculated as operating cash flow minus capital expenditures), up from SAR 3.11 billion in net profit. This surplus provides a buffer for both reinvestment and shareholder returns. The company's payout ratio of 56.75% in 2024—while higher than STC's 32%—is still within sustainable limits, especially given its growing free cash flow.

Strategic Positioning: 5G and Open RAN as Growth Catalysts

Mobily's recent partnership with Ericsson to deploy open radio access network (RAN) technology is a strategic masterstroke. By adopting open RAN, the company is future-proofing its 5G infrastructure, reducing vendor lock-in, and enabling scalable, cost-effective network expansion. This aligns with Saudi Arabia's 78% 5G population coverage target and Vision 2030's emphasis on smart cities and digital transformation.

The telecom sector as a whole is projected to grow at a 3.92% CAGR through 2030, driven by 5G adoption and enterprise demand for IoT and cloud services. Mobily's focus on fiber-optic broadband and enterprise solutions positions it to capture a larger share of this growth, particularly as it competes with STC and Zain KSA.

Risks and Mitigants: A Balancing Act

No investment is without risks. The telecom sector faces regulatory headwinds, including CITC's push for MVNOs (Mobile Virtual Network Operators), which could fragment market share. Additionally, the rise of over-the-top (OTT) services like WhatsApp and Skype threatens traditional voice and messaging revenue streams.

However, Mobily's diversified approach—leveraging AI-driven customer service, expanding into IoT, and focusing on enterprise solutions—mitigates these risks. Its debt-to-equity ratio, while slightly elevated, remains within prudent limits, and its free cash flow provides a cushion against economic downturns. The company's recent dividend increase in March 2025 (SAR 1.30 per share) also signals confidence in its ability to sustain payouts.

Investment Thesis: A High-Yield Stock with Long-Term Potential

For income-focused investors, Mobily offers a unique blend of rising yields and stable financials. While its dividend yield lags behind STC's, its projected growth to 6.0% by 2028 makes it an attractive alternative for those seeking a balance between yield and growth. The company's strategic investments in 5G and open RAN technology also position it to benefit from Saudi Arabia's digital transformation, enhancing long-term shareholder value.

However, investors should monitor Mobily's capital allocation decisions, particularly its willingness to reinvest in growth versus increasing dividends. A payout ratio above 60% could signal overcommitment to dividends, but given the company's free cash flow trajectory, this remains a distant concern.

Conclusion: A Buy with Caution

Etihad Etisalat (Mobily) is a compelling high-yield stock in the Saudi telecom sector, underpinned by a strong balance sheet, strategic 5G investments, and a dividend yield poised for growth. While it faces competition from STC and Zain KSA, its focus on innovation and customer-centric solutions provides a competitive edge. For investors comfortable with moderate volatility and a long-term horizon, Mobily represents a rare combination of income generation and growth potential—a rare find in today's market.

Final Word: The road to sustainable dividends is paved with innovation and discipline. Mobily has both. Now, it's up to the market to decide if it's ready to follow.