Analyst Note| Allen Good, CFA |
With a strong second quarter marked by higher earnings, stronger free cash and further debt reduction, Petrobras announced a surprisingly high dividend payout. For 2021, it plans to pay out $6 billion, nearly three time the average of the previous three years, in two installments, implying a yield of over 8% for ADRs. The final value to ADR holders will depend on exchange rates at the time of the payment, but at the current level the yield represents one of the highest in the sector. Although it is variable and dependent on future market conditions, it does signal, along with improved profitability and leverage metrics, that Petrobras is making continued progress on its debt reduction, divestment and focused investment plans. Our fair value estimate and moat rating are unchanged.