Petrobras Earnings: Dividend Reduction Sends Shares Lower

On Friday, March 8, Petrobras shares fell as the board-approved fourth-quarter dividend of BRL 1.10 ($0.44 per ADR at current exchange rates) was a decrease from third-quarter levels and likely less than what the market was expecting. The company also repurchased BRL 2.7 billion worth of shares, returning in total BRL 17.5 billion to shareholders in the fourth quarter. Petrobras did not pay an extraordinary dividend for the second straight quarter, although it met its policy by returning 45% of free cash flow, which remains highly competitive with integrated oil peers. The market shouldn’t be all that surprised, though. As we’ve previously noted, this is the beginning of a shift from a high shareholder distribution during 2022 in favor of larger future investments, including low carbon. We previously expressed our concerns when the payout reduction and latest investment plan were first announced. Our $15.30 fair value estimate and no-moat rating for Petrobras are unchanged, as shares were overvalued before March 8, in our view.