The Brazilian oil giant had a superb second quarter, so it's rewarding its shareholders.
Key Points
- Petrobras is on track to hit its debt goal earlier than expected.
- The oil stock's dividend policy is linked to its debt situation.
- Shareholders will receive a big dividend payout this month, and more later this year.
What happened
Shares of Petroleo Brasileiro SA Petrobras, aka Petrobras, jumped by as much as 13% Thursday morning after the Brazilian oil giant stunned Wall Street with its second-quarterly performance and attracted a flurry of analyst upgrades. It was, in fact, such a stellar quarter that Petrobras will not only pay hefty dividends to shareholders, it will distribute some of them earlier.
So what
Petrobras' revenue more than doubled to $21 billion in the second quarter, boosting its net income to $8.1 billion versus a loss of $417 million in the year-ago quarter. Higher crude oil prices and sales, both in its domestic market and abroad, drove those gains. Its export revenue also more than doubled to $6.4 billion. Petrobras is one of the largest oil producers in the world, and exports to countries including China, the U.S., Chile, Portugal, and India.
During the quarter, the company's capital expenditures hit $2.4 billion, much of which went to capacity expansion. Thanks to its stupendous earnings growth, though, its free cash flow more than tripled to $9.3 billion, and it ended the quarter with cash and cash equivalents of $9.8 billion on the books.
But here's the most important number: Petrobras paid down nearly $27.5 billion worth of debt during the quarter. It now expects to hit its gross debt target of $60 billion this year rather than in 2022.
That's excellent news for shareholders given the company's dividend policy, under which it aims to pay out larger dividends as long as it can reduce debt, regardless of how much profit it earns or what losses it incurs in a given year. Having retired a big chunk of its debt, Petrobras approved a shareholder payout of $6 billion, $4 billion of which will be distributed this month. That's huge: In the past three years combined, Petrobras only paid out $6.6 billion in dividends.
In recognition of all this, analysts at Credit Suisse and Scotiabank upgraded their ratings on Petrobras shares Thursday morning. While Credit Suisse set a price target of $14 a share, Scotiabank believes the stock will hit $16 in the next year. Petrobras shares were still changing hands at around $11.25 as of this writing.
Now what
Petrobras shares dropped sharply in the first quarter, but they've risen significantly over the past three months as investors anticipated better days for the once-beleaguered oil giant thanks to the rally in crude prices. Petrobras didn't disappoint, and its large dividend payout should support the stock's 3.6% yield. Importantly, now that the company is closer to its gross debt target, shareholders can expect regular -- and even fatter -- dividend checks in the future.