Saudi Telecom's Dividend Surge Masks a Complex Earnings Picture: What Investors Need to Know

Saudi Telecom Company (stc) has delivered a bold shareholder-friendly move, raising its dividend by 37.5% for the first quarter of 2025. But beneath the headline-grabbing payout lies a nuanced earnings report that highlights both strengths and vulnerabilities in the telecom giant’s financial trajectory.

The Dividend Boost: A Strategic Move or a Sign of Strength?

stc’s decision to increase its dividend to SAR 0.55 per share—up from SAR 0.40—marks a clear commitment to rewarding shareholders. The total payout of SAR 2.74 billion (5.5% of its SAR 50 billion capital) aligns with its newly approved three-year dividend policy, signaling long-term stability. This move is particularly notable in a region where telecom companies often prioritize reinvestment over returns.

Yet the dividend hike is not without context. stc’s net profit for Q1 2025 rose 11.05% year-on-year to SAR 3.649 billion, but this figure is skewed by a massive SAR 12.885 billion one-time gain in the prior quarter (Q4 2024) from asset sales. Stripping out that anomaly, net profit dropped 72.88% quarter-on-quarter, a reminder that stc’s profitability remains vulnerable to non-recurring events.

Operational Momentum Amid Mixed Signals

On the operational front, stc’s Q1 results underscore its core strengths. Revenue grew 1.6% year-on-year to SAR 19.21 billion, with business unit revenue surging 9.7% and commercial sales climbing 1.7%. Gross profit rose 5.01% to SAR 9.098 billion, while EBITDA increased 5.25% to SAR 6.12 billion—a clear sign of improved efficiency.

However, the company faces headwinds. Operating expenses jumped SAR 364 million year-on-year, driven by higher marketing costs and depreciation. This suggests that stc’s cost discipline may be under pressure as it invests in growth initiatives.

Strategic Moves to Watch

stc’s management has been proactive in positioning the company for the future. Key milestones include:
- A global first in eSIM technology localization with Thales, securing SAS-UP certification. This move not only strengthens its Saudi localization credentials but also reduces reliance on foreign suppliers.
- A partnership with Ooredoo to build a ground fiber network between Saudi Arabia and Oman, enhancing regional connectivity.
- A cloud computing pact with AWS, which could be transformative for stc’s ability to serve businesses in the Kingdom’s digitizing economy.

These moves align with Saudi Vision 2030 goals, but they also require sustained capital expenditure. Investors should monitor whether these initiatives generate returns commensurate with their costs.

Risk Factors and the Bottom Line

While stc’s dividend policy and operational metrics are positive, two risks stand out:
1. Volatility in one-time gains: The Q4 asset sale created an unsustainable high-water mark for quarterly profits.
2. Cost management: Year-on-year expense growth must be controlled to preserve margins.

Conclusion: A Balanced Bet on Saudi’s Digital Future

stc’s Q1 results present a compelling case for investors seeking both income and growth. The 37.5% dividend hike and robust year-on-year financial metrics (excluding Q4’s outlier) suggest strong underlying health. Strategic moves in infrastructure and technology partnerships—like the AWS deal—position stc to capitalize on Saudi Arabia’s rapid digitization.

However, the company’s reliance on non-recurring gains and rising operating expenses mean investors must remain cautious. The dividend policy’s three-year outlook is a stabilizing factor, but sustaining returns will require execution on its digital transformation roadmap.

In short, stc’s Q1 results are a win for shareholders in the near term, but the company’s long-term success hinges on navigating cost pressures and avoiding overreliance on one-off gains. For now, the dividend surge and 11% net profit growth year-on-year make it a stock worth holding—if you can stomach the volatility.