Brazil's oil industry and Petroleo Brasileiro S.A. (
PBR
,
quote
) have great potential.
Petrobras shares have floundered in recent
trading
due to the falling price of oil (
USO
,
quote
), but this is still a dividend-paying stock with a huge
upside. While Brazil still imports oil, the gap between
domestic production and consumption is dwindling.
[caption id="attachment_59556" align="alignright" width="300"
caption="Petrobras is a dividend paying stock worth hanging on
to."]
[/caption]
Oil production is increasing as deep-water discoveries add to
Petrobras reserves, positioning the company well for an inevitable
revival in global demand.
That is very bullish for Petroleo Brasileiro S.A. When Brazil
can meet its oil needs, there will be
greater opportunities for Petroleo Brasileiro S.A.
abroad
.
That is very significant for investors as Petrobras shares are
trading around a year low at $19.58.
As the recent International Oil Agency market
report
has it:
In Brazil, product demand expanded by 5.0% year‐on‐year in
March, following a 2.1% increase in
February. Product growth was led by gasoil/diesel (9.7%),
jet/kerosene (8.2%) and motor gasoline (5.1%), while residual
fuel dropped by 2.4%. Support for gasoil demand in March came
from the start of the sugarcane, corn and soy harvest seasons.
Jet fuel/kerosene demand is supported by strong growth in
domestic aviation. Industry indicators from March showed that
'available seat kilometres' grew by 7.0% annually. However, the
sector is slowing down as 'revenue passenger kilometres' grew
only 1.3%. Motor gasoline demand accelerated as a result of lower
prices of hydrous ethanol and strong seasonal demand.Refined
gasoline continues to be competitive and the fuel of choice, but
biofuel demand should pick up when ethanol stocks are replenished
by the 2012/2013 sugarcane harvest. Brazil's total oil product
demand is forecast at 2.8 mb/d in 2012, up 2.1% on the year
earlier.
Like other oil companies, Petrobras shares follow the price of
petroleum and pay a dividend even during the down swings.
Currently PBR pays a dividend of 5.09% with a low payout ratio
of just 36.24%.
Compared to other Big Oil companies like Exxon Mobil (
XOM
,
quote
) -- which only yields 2.65% -- this is a substantially richer
incentive for those willing to hang onto Petrobras shares while oil
markets recover.
The relatively low payout ratio means that there is ample cash
flow so that dividend growth is in the future for its
shareholders.
For value investors, this dividend-paying stock is very
attractive with a price-to-book ratio of just 0.69 and a
price-to-sales ratio of only 0.85. On a quarterly basis, sales
growth is up by 14.75%. The profit margin is solid at 12.35%
compared to XOM and its profit margin of 8.28%.
Now trading around $19.60, the mean analyst target price on this
dividend-paying stock over the next year is $32.92. With oil demand
back on the rise in emerging market nations such as China, India
and South Korea in addition to the domestic consumption in Brazil,
Petrobras shares will rebound sooner or later.
