Saudi Aramco, the biggest oil company in the world, largely owned by the Saudi state, slashed its dividend by 30%. The company divides its dividend into a base dividend and a variable dividend, which depends on business metrics. So why be surprised by the drop? Well, in the past five years during which Aramco has been a public company, it jiggled the dividend, but not by much. This cut is something else again. Presumably, the company is telling its investors (including the Saudi government) something.
But first,a quick look at Aramco as a publicly traded company.
Compared to the market as a whole (represented by the S&P 500) or to its biggest private competitor, ExxonMobil, its performance since the IPO in December 12, 2019, to May 10, 2025 has been awful:
Aramco
ExxonMobil
S&P 500
Change in stock price
-13%
57%
78%
Price change/year
-2.5%
9.0
11.3
Dividend yield/year
4.8%
5.2
2.8
Total return/year
2.3%
14.2
14.1
Some of the operating and financial statistics compared over the past five years make one question whether Aramco and Exxon actually were in the same business:
Annual % change in:
Aramco
ExxonMobil
S&P 500
Earnings per share
3.6
19.7
12.1
Dividend per share
15.2
3.2
7.5
Capital expenditures
9.0
-0.1
6.7
Earnings before Interest, taxes, depreciation and amortization (EBITDA)
4.4
16.9
12.1
Put simply, Aramco, as the government’s piggy bank, pumped out those dividends, and as the curator of Saudi Arabia’s major asset, pumped even more money into the ground to maintain that asset. If oil prices decline or demand declines, maintaining that dividend will become even harder. So why wait? ExxonMobil proved more frugal, restricting capital outflow to the benefit of shareholders. In other words, invest when it pays to invest.
If you are not a shareholder of Aramco, you might not care, unless that amputation of the dividend might mean something, especially in light of Donald Trump’s visit to the region. For instance, press stories say that Aramco might raise output (which would lower prices) to maintain its market share, and the dividend cut may represent the belt tightening at Aramco before the event. Donald Trump wants lower prices, especially at the gas pump, so Saudi action to lower prices would make him happy. On the other hand, Saudi action to lower prices would displease those Oil Patch big shots who so lavishly backed the Trump campaign. The administration says drill baby drill but why bother if prices will decline? The Saudis, to please the president, have promised billions (or trillions?) of investments in the United States, yet we know that the present state of Aramco’s business prevents it from paying out sufficient funds to finance the Kingdom’s ambitious development program and budget, which could make it difficult to finance all those investments in the United States? Which is another way of asking whether they will be able to keep all those promises that our president will fly home with? Oil prices can’t go up and down at the same time. Or are we missing something?
By Leonard Hyman and William Tilles for Oilprice.com
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