Can Petrobras Continue to Pay a 34% Yield?

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Over the last four quarters, Brazilian oil company Petróleo Brasileiro (NYSE: PBR), also known as Petrobras, paid out dividends equaling $3.79 per share. With its stock price just over $11, that comes out to a yield of 34%.

Can Petrobras shareholders expect a similar payout in 2023?

Under normal circumstances, perhaps.

In 2021, free cash flow was $32 billion. Petrobras hasn’t reported fourth quarter 2022 results yet. When it does, free cash flow for the full year is projected to come in at $31.5 billion, just below the previous year’s level.

For 2023, however, free cash flow is expected to be down drastically – falling all the way to $13 billion, as newly elected President Luiz Inácio Lula da Silva has ordered the company to increase capital expenditures.

The projected $13 billion in free cash flow in 2023 would not come close to covering 2022’s $22 billion estimated dividends paid.

Chart: Petrobras' Declining Free Cash Flow Is a Problem for Its Dividend
Petrobras does not have a good track record when it comes to paying shareholders dividends. It eliminated the dividend in 2014 and did not pay one again until 2018.

Petrobras’ largest shareholder is the Brazilian government. As a result, the dividend has become the plaything of recent presidents.

Last year, then-President Jair Bolsonaro needed more funds for the Treasury, so he ordered Petrobras to pay more dividends, which it did.

Now President Lula is demanding the opposite – that the company spend more on capital expenditures, lowering prices and reducing the dividend.

Wall Street predicts dividends paid will drop by about two-thirds, which is still enough for a double-digit yield.

But when your largest shareholder is the federal government and the president says, “Jump,” your CEO says, “How high?”

Or in this case, when the president says, “Cut,” the correct answer is, “How low?”

Petrobras will still generate plenty of cash flow and pay shareholders a healthy dividend, but it will be nowhere close to the artificially inflated dividend of the past year.

Petrobras’ dividend will be lower in 2023.

Dividend Safety Rating: F

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