Petrobras (PBR) is one of Latin America’s largest publicly traded companies as well as a major global oil producer based in Brazil. The company’s recent dividend yield of more than 20% gives it potent appeal as a recommendation for 2024. Mostly state-owned, Petrobras also offers strong growth potential as it expands its deep-water exploration and production, writes Paul Dykewicz, editor of StockInvestor.com.
Foreign stocks can face currency rate risk, but Fed Chairman Jerome Powell recently signaled that the US central bank likely will cut rates in 2024.
That would follow Brazil’s central bank cutting its benchmark interest rate by 50 basis points on Dec. 13 for the fourth time in a row – and its plan to trim at the same pace beyond its January meeting. With both central banks planning to cut rates in 2024 and inflation rates now falling in each country, risk of excessive currency rate fluctuation between the US dollar and Brazil’s real seems modest.
Another plus is that Fitch Ratings affirmed Brazil's long-term foreign-currency issuer rating at "BB" on Dec. 15, with a stable outlook. It noted President Luiz Inacio Lula da Silva's first year of his third term in office has showed “broad policy pragmatism." The Fitch report on Brazil added that the current ratings were supported by the country’s “large and diverse economy, high per-capita income, and deep domestic markets and a large cash cushion.”
Earlier in 2023, S&P raised Brazil's outlook rating in 2023 to "positive" from "stable," affirming its "BB-minus" rating. Under Lula’s leadership, Brazil’s government is pursuing revenue-enhancing measures, despite demands by the president's Workers Party and policy conflicts with the country’s Congress that have slowed progress on certain goals.
Petrobras’s fossil-fuel-friendly growth plans face less political pressure from environmentalists than many other oil countries. As a result, the company should be able to help meet long-term crude oil demand as it expands its fossil fuel operations aggressively during the next five years.
High-income expert Bryan Perry, who heads the Cash Machine investment newsletter that I edit, introduced me to the hefty dividend yield of Petrobras and the fact the stock is still posed for further strong payouts and share price gains in 2024.