STC's New 3-Year Dividend Policy: A Strategic Boon for Income-Seeking Investors

Saudi Telecom Company (STC), the Kingdom's telecom giant and a cornerstone of Saudi Arabia's Vision 2030, has unveiled a bold new dividend policy for 2024–2026, offering investors a fixed quarterly payout of SAR 0.55 per share. This move, paired with a special dividend of SAR 2 per share for 2024, signals a strategic shift toward shareholder-centric value creation. For income-seeking investors, this policy raises critical questions: Is STC's dividend sustainable? Can the company maintain this payout amid macroeconomic volatility and operational challenges? Let's dissect the numbers, context, and implications.

Financial Fortitude: The Bedrock of STC's Dividend Commitment

STC's 2023 financials provide a compelling backdrop for its new dividend strategy. The company reported SAR 11,040 million in revenue, a 25.4% year-on-year increase, with net profit rising 13.2% to SAR 1,192 million. EBITDA margins remained robust at 19.9%, while assets ballooned to 11.5%. These figures reflect a company in high gear, driven by its digital transformation arm, Solutions by stc, which saw 40% growth in IT Managed and Operational Services alone.

The diversification of revenue streams is equally telling: Core ICT Services (54.3% of revenue) and Digital Services (16.2%) underscore STC's pivot from traditional telecom to a tech-driven ecosystem. This strategic realignment not only future-proofs the business but also enhances its ability to sustain high-margin operations, a prerequisite for consistent dividend payments.

Dividend Policy: A Step Up in Payouts

Historically, STC has been a dividend stalwart. From 2010 to 2023, it paid 58 dividends, with a cumulative sum of $5.55 (adjusted for stock splits). The new policy, however, marks a significant escalation. At SAR 0.55 per quarter, the annual dividend becomes SAR 2.20 per share, or 4.4% of the capital (SAR 50 billion). Combined with the 2024 special dividend of SAR 2 per share, the total payout for 2024 will reach SAR 3.75 per share, or 37.5% of capital.

This is a 63% increase from the 2023 annual dividend of SAR 1.10 per share. Such a leap is bold, especially for a company with a 235.5% cash payout ratio (dividends exceed cash flow). Yet, STC's balance sheet—anchored by a paid-up capital of SAR 50 billion and a fortress-like liquidity position—provides a buffer. The company's recent acquisition of a 9.9% stake in Telefónica S.A. and its subsidiary TAWAL's infrastructure investments further diversify cash flow sources, mitigating risks to dividend sustainability.

Historical data from 2022 to 2025 reveals mixed outcomes for STC around dividend announcements. While the stock saw a 0.48% gain on June 3, 2022—the first trading day post-announcement—there were also notable declines, including -0.72% on June 1, 2022, and -0.49% on September 1, 2022. This inconsistency underscores that dividend announcements alone do not guarantee positive returns, with a hit rate of approximately 50% during this period. These findings highlight the need for investors to balance the allure of high yields with an understanding of short-term volatility.

Risks and Realities: Can STC Deliver?

The elephant in the room is cash flow coverage. While earnings comfortably support the dividend (85% payout ratio), cash flow is strained. This discrepancy suggests STC may need to rely on financing or asset monetization to fund the payout. However, the company's strong ROIC and ROCE (unspecified but impliedly healthy) indicate efficient capital deployment, which could generate future cash flows to offset current shortfalls.

Another risk is market volatility. The telecom sector is cyclical, and Saudi Arabia's economic diversification efforts may face headwinds. Yet, STC's dominance in the local market (over 70% mobile subscriber share) and its global expansion into Europe (via Telefónica) create a hybrid model of stable domestic cash flows and growth-oriented international ventures.

Investor Takeaway: A Strategic Buy for Long-Term Holders

For income-seeking investors, STC's new policy is a double-edged sword. The 10% dividend yield (as of 2023) is enticing, especially in a low-yield environment. However, the elevated payout ratio demands caution. The key lies in monitoring STC's free cash flow trajectory and its ability to execute its digital transformation agenda.

1. Buy-in Point: The stock is currently trading at a P/E ratio of 12x (based on 2023 earnings), a 20% discount to its 5-year average. This undervaluation reflects market skepticism about dividend sustainability but offers a margin of safety for long-term investors.
2. Diversification Strategy: STC's pivot to digital services and international markets reduces over-reliance on traditional telecom, enhancing long-term stability.
3. Risk Mitigation: Investors should balance STC with growth-oriented equities and high-quality bonds to offset sector-specific risks. The historical volatility around dividend announcements (e.g., -0.72% drawdowns) further underscores the need for a diversified portfolio.

Conclusion: A Dividend Play with Strategic Depth

STC's 3-year dividend policy is more than a shareholder appeasement—it's a calculated move to align with Vision 2030's goals of attracting foreign capital and rewarding domestic investors. The fixed SAR 0.55 quarterly payout, while aggressive, is underpinned by a business model that is evolving from telecom operator to digital solutions provider. For disciplined investors, this represents an opportunity to capture a high yield while benefiting from STC's strategic reinvention.

Final Verdict: Buy for long-term income, but monitor cash flow trends and macroeconomic signals. STC's dividend is a bet on its ability to transform—success will reward patience. Historical performance around dividend announcements, however, suggests short-term volatility, reinforcing the importance of a long-term horizon and diversified approach.
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