Alinma Bank's Dividend Sustainability in a Changing Saudi Banking Landscape

The Saudi banking sector is undergoing a transformative period, driven by regulatory reforms, technological disruption, and shifting economic priorities under Vision 2030. For income-focused investors, Alinma Bank (ticker: ALINMA) has emerged as a key player, offering a dividend yield of 4.6% in 2025. But how sustainable is this payout in the face of capital growth, Basel III compliance, and intensifying competition? Let's dissect the numbers and strategies behind Alinma's dividend policy to assess its long-term viability.

Dividend History: Volatility with a Resilient Core

Alinma Bank's dividend trajectory since 2018 has been marked by both volatility and resilience. The bank's 2018 payout of SAR 0.80 per share (a 166.67% increase from 2017) was followed by a 40% drop in 2019, reflecting early-stage adjustments to market conditions. However, from 2021 onward, the bank began to stabilize its dividend strategy, with a 45.83% increase in 2021 and a 42.86% rise in 2022. By 2024, despite a mid-year dip to SAR 0.25 per share, the dividend rebounded to SAR 0.30 per share by November, signaling a return to disciplined distributions.

The 2025 Q1 dividend of SAR 0.30 per share—equating to a 3% payout—was approved with a 51.2% payout ratio, well within the 53.7% forecasted coverage for the next three years. This suggests that the bank's earnings (SAR 1.508 billion in Q1 2025) are robust enough to support the dividend while maintaining capital buffers. For context, Alinma's average dividend growth rate over the past three years has been 30%, outpacing many regional peers.

Capital Growth and Profitability: A Strong Foundation

Alinma's capital structure has been a cornerstone of its dividend sustainability. Total assets surged to SAR 287.2 billion in Q1 2025, a 17.3% year-over-year increase, while its financing portfolio expanded by 15.9% to SAR 209.4 billion. The bank's return on equity (ROE) has also improved dramatically, rising from 8.39% in 2018 to 18.80% in 2024. This 126% increase in ROE underscores Alinma's ability to generate returns on its equity base, a critical factor for sustaining dividends.

Net profits have mirrored this trend, growing from SAR 1.966 billion in 2018 to SAR 5.832 billion in 2024—a 298% increase. This profitability, combined with a CET1 capital ratio of 16.6% (as of Q1 2025), provides a buffer against regulatory capital requirements under Basel III. The bank's non-performing loan (NPL) coverage ratio of 156.41% further reinforces its asset quality, reducing the risk of unexpected losses that could erode earnings.

Regulatory Shifts: A Double-Edged Sword

The Saudi Arabian Monetary Authority (SAMA) has imposed stricter capital adequacy standards under Basel III, requiring banks to maintain higher liquidity and leverage ratios. While this increases the cost of compliance, Alinma's prudent capital management—evidenced by its 51.2% payout ratio in 2025—demonstrates its ability to balance shareholder returns with regulatory demands.

Open banking initiatives, such as SAMA's Open Banking Lab, have also introduced new competition from fintechs. However, Alinma's investment in digital infrastructure (e.g., AI-driven customer service and mobile banking) has allowed it to retain market share. The bank's 14.7% year-on-year growth in Q1 2025 net profit, despite rising fintech competition, highlights its adaptability.

Sector Competition: Navigating a Crowded Market

Alinma faces stiff competition from peers like Arab National Bank (ANB) and Bank Albilad. ANB, for instance, offers a higher yield of 6.28% as of July 2025, supported by a 15.38% loan portfolio growth and a CET1 ratio of 16.6%. However, its 42.7% payout ratio—lower than Alinma's 51.2%—suggests a more conservative approach to capital preservation. Bank Albilad, meanwhile, has adopted a cautious strategy, with a projected yield decline to 2.1% by 2026.

Alinma's 4.6% yield sits comfortably in the middle of this spectrum. While it's below the top quartile of Saudi dividend payers, it offers a compelling balance between growth and sustainability. The bank's leadership changes, including the appointment of Mr. Abdullah Al Khalifa as Managing Director, may further stabilize its dividend policy by aligning strategic priorities with long-term shareholder value.

Investment Implications: A 4.6% Yield for the Long Haul

For income-focused investors, Alinma's dividend sustainability hinges on three pillars:
1. Profitability: With ROE of 18.80% and net profits growing at a 20.5% annualized rate, the bank has ample earnings to support dividends.
2. Capital Strength: A CET1 ratio of 16.6% and NPL coverage of 156.41% provide a safety net against regulatory and economic shocks.
3. Strategic Flexibility: Digital transformation and prudent payout ratios (51–53.7%) position Alinma to adapt to sector shifts without compromising returns.

The 4.6% yield is not the highest in the market, but it is one of the most sustainable. Given Alinma's track record of balancing growth and capital preservation, it offers a reliable income stream for investors willing to hold through moderate volatility. However, close attention should be paid to macroeconomic risks, such as rising interest rates or a slowdown in Saudi's non-oil sectors, which could pressure margins.

Conclusion: A Prudent Bet for Income Investors

Alinma Bank's 4.6% dividend yield is a compelling opportunity for long-term investors seeking stability in a dynamic sector. The bank's strong capital position, improving profitability, and strategic agility make it well-equipped to navigate regulatory and competitive challenges. While the yield may not match the highest in the market, its sustainability—backed by a 53.7% projected payout ratio and a 18.80% ROE—makes it a safer bet than more aggressive payout strategies.

For those prioritizing income with a margin of safety, Alinma Bank's dividend appears to be a durable feature of its value proposition in 2025 and beyond.