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Petróleo Brasileiro S.A. (NYSE: PBR), Brazil’s state-controlled oil giant, is once again in the spotlight as it grapples with shareholder expectations and market dynamics. After reporting a 38% year-over-year decline in Q1 profit earlier today, Petrobras announced that it is slashing its Q1 2024 dividend payout. This move will see dividends reduced to 1.04 reais per share, totaling 13.45 billion reais ($2.6 billion), which is considerably lower than analysts’ projection of $3.2 billion according to Bloomberg’s data.

Unsurprisingly, the market reacted swiftly to this news, with Petrobras shares experiencing a decline of more than 2% during the morning session today. Analysts, including those at Citi, had anticipated a negative market response, citing concerns over capital allocation risk, a downward trend in oil prices, and the implications for dividend and free cash flow yields.

This reduction in dividends follows a period of internal discord within Petrobras over how best to utilize its cash reserves. Previous disagreements between the board and government stakeholders led to speculation regarding the tenure of Chief Executive Officer Jean Paul Prates. While Prates advocated for distributing some cash as a special dividend, government representatives favored retaining funds within the company.

Ultimately, Petrobras distributed 50% of available cash as a special dividend. Despite reassurances from Prates regarding Petrobras’s ability to execute its business plan and secure future investments, concerns linger over the company’s dividend policy and capital expenditures. With plans to allocate more resources to renewable energy segments, such as wind, solar, and biofuels, Petrobras faces scrutiny over potential impacts on profitability and shareholder returns.

As investors weigh these developments and their implications for Petrobras’s financial health and market performance, let’s turn our attention to the charts for insights into potential price movements and market sentiment.

Long-term resistance impeding the bull run

Since making a low of $4 amidst the carnage during the onset of COVID, Petrobras’ stock has delivered over fourfold returns in price returns alone over the past four years. If one includes the dividend, the total return provided by the stock will easily cross 450%.

(Click on image to enlarge)

PBR chart by TradingView

Despite such a spectacular return, the stock again faced its longtime foe in the form of $18 resistance recently and retraced from there. Even before the plunge during the COVID crisis, the stock found it hard to trade above $18 and this year too it failed to cross that mark making a high of $17.91 in February.

Long-term investors who have purchased the stock at lower levels can continue to hold it as long as it trades above $12.8 and doesn’t go below its long-term bullish trendline. However, investors who want to buy the stock at current levels must wait for it to have a weekly closing above $18 before initiating a long position.

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