SAO PAULO (Reuters) – A meager dividend from Brazil’s state-run oil company Petrobras sent its shares plunging on Friday, erasing more than 70 billion reais ($14 billion) from its market value as analysts questioned how the firm would spend its growing cash reserves.
The more than 10% drop in shares reflects investors’ biggest frustration yet with Chief Executive Jean Paul Prates, who has tried to balance the interests of minority shareholders with a leftist government eager to see more capital spending.
Petrobras has been a major cash cow for its shareholders in recent years, including the Brazilian government, with the prior management paying out far more than Western oil major peers.
Under new management picked by President Luiz Inacio Lula da Silva, the company had pared back its payouts, but an extraordinary dividend was still widely expected in the market.
Goldman Sachs analysts told clients that investors had expressed expectations of a $3 billion to 4 billion extraordinary dividend in addition to the predetermined year-end payout.
In a fourth-quarter earnings release late on Thursday, Petrobras said it would only pay a routine dividend of 14.2 billion reais ($2.9 billion) to shareholders.
“The message that was passed is very clear: Investors should expect only minimum dividends for Petrobras,” analysts at JPMorgan wrote, saying the fourth-quarter payout represents a meager dividend yield of 8.1% in 2024, “substantially below that of peers that typically deliver returns in the low teens.”
The lack of an extra dividend also triggered a slew of downgrades from analysts, including at Bank of America, Bradesco BBI and Santander.
Preferred shares in Petrobras plunged more than 10% to 36.16 reais in Friday morning trading in Sao Paulo, responsible for dragging the benchmark Bovespa stock index 1.4% lower.
The decision “heightens the risk perception at Petrobras, particularly on the government influence regarding major capital allocation decisions,” analysts at Bank of America wrote in a note to clients while downgrading the stock to neutral.
Nixing the extra dividend means that Petrobras “could be pivoting to an agenda more focused on growth in renewables (triggering higher capex with lower returns) and increases the probability that the company could pursue M&A,” they said.
Analysts at Bradesco BBI also downgraded the firm, saying they believe “flows could move away from Petrobras to Chinese oil companies given the recent turnaround in capital discipline and strong buyback programs,” also mentioning Saudi Aramco.
BTG Pactual analysts struck a more balanced tone, noting that Petrobras had set aside 43.9 billion reais in a fund earmarked for “capital remuneration.”
“So using it for other purposes will require amendments to the bylaws,” they added.
Petrobras reported a 6.3% drop in its fourth-quarter net recurring profit to 41 billion reais, beating expectations of 35.3 billion reais among analysts polled by LSEG.
($1 = 4.9769 reais)
(Reporting by Peter Frontini; Editing by Gabriel Araujo, Brad Haynes and Jonathan Oatis)