Petrobras falls after shareholders irritated by dividend payout

Petróleo Brasileiro (PBR) — commonly abbreviated as "Petrobras" — shares fell off by over 11% after delivering a smaller-than-expected dividend to shareholders.

Yahoo Finance Senior Business Reporter Ines Ferré explains why markets were so shocked by this decision, highlighting the internal pressures Petrobras faces from its board and challenges from Brazilian President Luiz Inacio Lula da Silva and his administration.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video transcript

JULIE HYMAN: Another stock that we are watching today. It's a ticker that does not trend on Yahoo Finance very often. We're talking about Petrobras, the Brazilian oil and gas giant.

The company delivering smaller than expected dividend payout here. A lot of analysts were talking about $3 billion in cash returned to investors. And now, the special dividends are not being approved. And investors not happy about it.

JOSH LIPTON: Yeah, it sounded like there was a good Bloomberg piece on it saying the CEO abstained from the vote. And they were characterizing it as caught between the government, keeping the government happy, which she apparently wants Petrobras to boost investment. And on the other hand, obviously pressure from shareholders. That's the spot the CEO found himself in.

JULIE HYMAN: Yeah, let's bring in Ines Ferre for more on this who tracks the oil and gas industry. And it's a really interesting story. Because, on the one hand, you have privately held companies that are publicly traded around the globe that pay high dividends. And then you have this company that is sort of it seems like succumbing to government pressure and is not going to be competitive in the dividend space.

INES FERRE: That's right. This is Petrobras which is a state-owned company. It is a company which is huge in Brazil. And it's one of the really large companies when it comes to oil and gas in the world.

In fact, in Brazil, it's accountable for 73% of the production of oil and gas in Brazil. And what they did was they really shocked the markets by not handing out this extraordinary dividend that investors were expecting. And this really spooked the markets.

Because the board of directors, it was said that they voted against this. And those board of directors, the members of the board of directors have been appointed by the energy minister and also by the administration, the Lula da Silva Administration, which is a leftist administration.

And, in fact, reuters just came out with a piece saying that it was Lula da Silva himself that said that dividend should not be doled out, and that he wants that money to be invested for Petrobras to invest that money. This company has a large investment plan over the next five years.

They're expecting to invest more than $100 billion. 5 billion of that, by the way, going into renewable energies. They say that they are a company that is in transition when it comes to into renewable energy.

But it really goes to show you this tug and pull between what Josh was alluding to, which is the administration, and the government, and politics, and a company that wants to make money, and is out to make money also for its shareholders And its investors, which are investing in this company because they're expecting these types of dividends.

JULIE HYMAN: Yeah, Ines, it's quite interesting. And it seems like there are some broader concerns, not just about Petrobras, but about other state-owned enterprises like this, too. Investors seem to be trying to figure out if there are implications there.

INES FERRE: That's right because Lula da Silva, you'll remember that he has been reelected. And this is an administration that has been involved in-- look, in Latin America, overall, you have these types of companies that are these very much state controlled in a way companies.

And so for a time there, you saw that after he was elected, you didn't see much involvement, so to speak. But now, you are seeing this. And so this has spooked the market.

You saw the Real, the Brazilian currency that went down when this happened as well. And that is because investors are concerned that the government is going to meddle in. And they will use this money to spend to invest.

JULIE HYMAN: We shall see, ines. Thank you so much. Appreciate it.