Petrobras slashes dividend: Is it time to sell the stock?

Core Insights - Petrobras, Brazil's state-controlled oil giant, reported a 38% year-over-year decline in Q1 profit and announced a reduction in its Q1 2024 dividend payout to 1.04 reais per share, totaling 13.45 billion reais ($2.6 billion), which is lower than analysts' expectations of $3.2 billion [1][2]. Financial Performance - The market reacted negatively to the dividend cut, with Petrobras shares declining over 2% during the morning session [2]. - Analysts from Citi highlighted concerns over capital allocation risk, a downward trend in oil prices, and implications for dividend and free cash flow yields [2]. Internal Dynamics - The reduction in dividends follows internal discord within Petrobras regarding cash reserve utilization, with previous disagreements between the board and government stakeholders [3]. - CEO Jean Paul Prates faced speculation regarding his tenure, as he advocated for distributing cash as a special dividend, while government representatives preferred retaining funds [3]. Strategic Focus - Petrobras distributed 50% of available cash as a special dividend, but concerns remain over its dividend policy and capital expenditures [4]. - The company plans to allocate more resources to renewable energy segments, including wind, solar, and biofuels, raising scrutiny over potential impacts on profitability and shareholder returns [4]. Market Sentiment - Despite a significant total return of over 450% since the COVID crisis low, Petrobras stock has struggled with resistance around $18, failing to maintain trading above this level [9]. - Long-term investors are advised to hold as long as the stock trades above $12.8, while new investors should wait for a weekly close above $18 before initiating a long position [10].