Morgan Stanley has flagged a substantial rise in dividends from Thai refiners, saying payouts have already doubled and are expected to increase threefold in 2026 as companies convert excess earnings into shareholder distributions after paring back debt.
The investment bank highlighted that refiners have so far distributed only about 16% of first-half 2026 cash flows that arose from higher earnings, on average. That limited distribution rate indicates room for materially larger returns to investors as firms continue to strengthen balance sheets.
Fundamentals underpinning Morgan Stanley's view include a notable tightening in product markets. The bank noted global fuel inventories have fallen to levels not seen since 2022. Alongside that decline, limited capacity additions, a number of refinery closures and sustained high utilization rates have kept markets tight for refined products.
Based on these market dynamics, Morgan Stanley retains a positive assessment of the refining cycle's durability. The bank expects the current upcycle will persist longer than market participants commonly estimate and foresees a new, higher mid-cycle for refining margins. Although it cautions that quarterly margins are likely to remain volatile and will normalize from their present levels, the bank anticipates annual margins will stay above historical averages.
After what Morgan Stanley described as a strong second quarter of 2026, the bank projects medium-term gross refining margins will settle at roughly 30% above previous mid-cycle averages. That improvement in margins is expected to bolster cash generation over the cycle.
With improving balance sheets and more moderate capital expenditure needs for several refiners, Morgan Stanley sees greater scope for converting cash flow into shareholder returns. The combination of elevated margins, lower debt burdens and controlled capex underpins the bank's projection of sharply higher dividends from the sector by 2026.
Contextual note - The conclusions and figures cited above are from Morgan Stanley's analysis of the refining sector and its expectations for dividends, margins and cash flows.