Update Vale (VALE)

10/01/2010 2:18 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Looking for a big shareholder friendly Brazilian commodities play?

I’d look right past Petrobras (PBR) where the Brazilian government took a bigger stake in the company (48%) after the company’s $67 billion share offering last week to Vale (VALE), the country’s big iron ore exporter. (For more on why that offer was bad news for investors see my post http://jubakpicks.com/2010/09/30/sure-petrobras-raised-67-billion-but-heres-why-i-think-investors-should-see-it-as-a-failure/)

Vale announced two important moves for shareholders last week. First, the company will pay out $2.75 billion in dividends to shareholders in three tranches by next January. The cash for this dividend payout comes from Vale’s sale of its aluminum assets to Norsk Hydro for $4.9 billion. Second, Vale will buy back $2 billion of its own shares.

The cash is nice and so is the likely appreciation from the buy back, but maybe the most important aspect of these payouts is that they reduce the likelihood that Vale will do a big acquisition that might add to the company’s $20 billion in long-term debt and further stress a management that is still struggling to integrate other big acquisitions.

Not that Vale doesn’t have further plans to expand. I think that’s what’s behind Vale’s listing of its stock on the Hong Kong stock exchange. Once it secures regulatory approval Vale plans to list depositary receipts in Hong Kong by the end of 2010. That will make the company’s name more familiar to Chinese investors—and nothing like familiarity if you want to raise capital in China.

Someday.

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