MANAMA — Bahrain's stock market is the worst-performing in the region this year, but it has a major attraction: ultra-high dividend yields. Unfortunately, the market has become too illiquid for many investors to take advantage of that fact. The main Bahrain stock index is down 7.6 percent year-to-date, underperforming all other countries in the Gulf Cooperation Council: Saudi Arabia, the United Arab Emirates, Kuwait, Qatar and Oman. Saudi Arabia is up 6.2 percent. Continuous street protests are dampening investor sentiment and weighing on the economy. The Bahrain index is down 28 percent since the protests began in early 2011, and has reached its lowest level since 2003. Funds have been leaking out of the market, shrinking its capitalization to 5.8 billion dinars ($15.4 billion) from 7.73 billion dinars in January 2011. The country of about 1.3 million people does not have the rapid population growth needed to spur domestic demand in the absence of major export industries, so it is considered a “mature” rather than a potentially high-growth market by fund managers. In one respect, though, Bahrain's market stands out: the return on stocks available from their dividends. Aluminum Bahrain (Alba) has a dividend yield of 14.0 percent based on last year's dividend, according to stock exchange data; Bahrain Telecommunications (Batelco) has a yield of 9.5 percent and BBK, a major bank, 6.4 percent. Such yields compare favorably with markets around the region. Qatar National Bank, for example, has a yield of 2.7 percent; Qatar Telecom paid just 1.9 percent at the end of 2011. “I would look for certain stocks which currently have a double-digit yield and hold them for the long term, not for trading,” said a Bahraini investment manager, who declined to be named because he was not authorized to speak to media. “I would buy Alba, because it is a big industry and fairly competitive, and Batelco, because of the telecom sector's defensive nature.” But analysts say poor liquidity is deterring many investors from going after the dividends in Bahrain. The market has traded just 478 million shares so far in 2012, compared to the 72.5 billion in Saudi Arabia, the Gulf's largest market. Thin trading volumes make it hard for investors to accumulate enough of a stock to benefit from the dividends – and increase risks by making it difficult to get out of a stock if investors want to redeploy their money. – Reuters
