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Why I Sold Altria To Buy Petrobras And Ecopetrol

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Front position of Petrobras Petroleo Brasileiro S.A. Company Main Office successful Rio de Janeiro, Brazil

caio acquesta

I person owned Altria (MO) for a small complete a year, and nan stock value capacity was a batch amended than nan wide market. I americium a diligent investor, but I besides person much ideas than I do money correct now. I cognize I made Altria one of my picks for 2023, and I surely had nary plans connected trading a mates months ago. There were respective things that started nan mini sound successful nan backmost of my head, but nan waste and acquisition became much evident arsenic I kept digging. I find nan baccy manufacture beautiful charismatic for respective reasons, but Altria was my superior holding for its ample dividend and marque powerfulness of Marlboro.

If I could create nan perfect baccy institution from scratch today, nan business operation would beryllium astir a 3rd cigars, a 3rd cigarettes, and nan last 3rd would beryllium a competitor for Zyn pouches. You mightiness announcement that products for illustration vapes are absent, but I americium skeptical connected nan semipermanent early of group switching to vapes and different akin products. When I heard that Altria is dumping different mates cardinal into NJOY, my first thought was each nan money that guidance lit connected occurrence pinch Juul, different vape company. I wasn’t reasoning astir trading until past week, but nan NJOY acquisition speculation (which has now been confirmed) was benignant of nan catalyst that caused maine to commencement looking elsewhere.

Like galore investors, I bought Altria for nan inexpensive valuation and nan ample dividend. Altria still has a azygous digit P/E ratio and a output complete 8%. I don’t deliberation a recession impervious business pinch margins for illustration Altria should beryllium this cheap, but that is what ESG will do. I still deliberation Altria is an charismatic risk/reward proposition beneath $50, but I’m consenting to return my mini gains and reinvest elsewhere because I find nan alternatives to beryllium amended opportunities.

Altria P/E

Price/Earnings (fastgraphs.com)

I said successful my past article that each it would return for Altria to caput past $60 was aggregate description to 12x. That still holds true, and location aren’t galore stocks retired location wherever you tin cod an 8% dividend while waiting for a apt value appreciation kicker. For me, it each comes down to opportunity cost. Do I deliberation Altria is still cheap? No doubt. Do I deliberation Altria will apt outperform nan market? Yes. Do I deliberation shares are arsenic charismatic arsenic Petrobras (NYSE:PBR) (NYSE:PBR.A) aliases Ecopetrol (EC)? Not moreover close.

Petrobras – The Brazilian Oil Giant

I started looking person astatine Petrobras and Ecopetrol complete nan past mates months. I was amazed to spot really heavy nan selloffs got, but selloffs owed to misplaced governmental fearfulness person created very absorbing opportunities. While I typically get astir of my caller ideas from Seeking Alpha, immoderate of my caller ideas (like Transocean (RIG) and Peabody Energy (BTU)) ended up successful my investigation heap from accounts I travel connected Twitter. While immoderate investors mightiness not beryllium comfortable getting finance ideas disconnected of Twitter, a batch of nan accounts I travel supply a ton of bully accusation for free.

One successful particular, @calvinfroedge, has been pounding nan array connected Petrobras and Ecopetrol for immoderate time. For those pinch Twitter accounts, I would urge pursuing him. I tin besides urge going into nan app and searching $PBR aliases $PBR.A, which will bring up apical tweets connected nan company. It’s beautiful evident that Petrobras is very cheap, but 1 of nan tweets I saw this play stood out.

Petrobras Valuation

Petrobras is CHEAP (twitter.com)

Petrobras had a monster 2022 for illustration galore companies successful nan power sector. While I deliberation nan American companies will execute reasonably good complete nan adjacent mates years, nan valuation connected Petrobras looks absurdly cheap. The truth that nan institution made arsenic overmuch money successful 2022 arsenic Valero (VLO), Phillips 66 (PSX), EOG Resources (EOG), Devon Energy (DVN), and Hess Corporation (HES) mixed is an awesome feat. Now see that Petrobras' marketplace headdress is little than 1 3rd of nan American companies above. I hadn’t looked that intimately astatine Petrobras until nan past mates weeks, but nan lightbulb yet went disconnected for me. Better precocious than never, I guess.

The dividend, which mightiness not beryllium accordant for illustration American companies, has been very rewarding for investors complete nan past mates years. Shares of Petrobras paid complete $6 successful dividends successful 2022, which is perfectly insane for a banal trading beneath $10. I bought nan PBR.A (I’ll explicate why shortly). The adjacent dividend payout will beryllium $1.06, pinch 2 adjacent payments successful May and June. I scheme to bargain 1,000 shares, truthful I’ll beryllium getting a spot complete $1000 and 10% of my money backmost by nan extremity of June. I don’t deliberation we will spot nan dividends beryllium arsenic large arsenic past year, but I deliberation investors will get different payout successful nan 2nd half of nan year.

PBR aliases PBR.A?

One past point I want to screen connected Petrobras is nan stock structure. If you hunt Petrobras, you will beryllium capable to find 2 tickers: PBR and PBR.A. PBR is nan communal stock, which gives you voting authorities and much liquidity, but trades astatine a beautiful wide premium ($11.43 arsenic I constitute this Monday night). PBR.A, connected nan different hand, is conscionable complete $10. It is simply a preferred share, which intends nary voting authorities and little liquidity, which are some nonissues for me. The PBR.A shares person dividend priority, which is simply a bully prize for investors. The institution is required by rule to administer astatine slightest 25% of nett profits for PBR.A, truthful moreover if nan dividends driblet connected nan communal share, PBR.A holders should still person sizable dividends.

I wouldn’t beryllium amazed to spot Petrobras salary much than $2 successful dividends to shareholders complete nan adjacent 12 months. I deliberation that Petrobras will proceed to salary sizable dividends for years to come, and pinch my position connected lipid prices complete nan adjacent 3 to 5 years, I deliberation it is wholly imaginable that investors buying coming could spot their full first finance returned to them complete nan adjacent 3 to 5 years. That is different logic I for illustration PBR.A, which has ineligible protections for nan dividend.

Unless you scheme to move mountains of money successful Petrobras, I deliberation nan PBR.A shares would beryllium a amended fresh for astir investors. You get nan shares astatine a decent discount, and nan voting authorities and liquidity aren’t issues for astir investors anyway. While Petrobras does person immoderate governmental risk, I person a difficult clip seeing really investors could suffer money complete nan adjacent mates years pinch Petrobras. If shares support dropping, I’ll gladly adhd to my position.

Ecopetrol – Petrobras' Colombian Counterpart

Many investors acquainted pinch nan power abstraction person heard of Petrobras, but Ecopetrol flies nether nan radar by comparison. I’m going to support this conception shorter arsenic Ian Bezek did a awesome constitute up connected nan institution past week. Some investors mightiness not for illustration nan thought of buying shares of a institution wherever 88% of nan banal is owned by nan government, but I deliberation nan imaginable rewards warrant nan risks pinch Ecopetrol. Ecopetrol will beryllium paying retired $2.47 this year, truthful I will beryllium getting complete $2,000 aliases 20% of my money backmost by nan extremity of nan year.

The costs of dividends to number shareholders will beryllium made successful 3 adjacent installments connected April 27, September 28 and December 21, 2023.

- Ecopetrol's 2022 Earnings Distribution Proposal | Seeking Alpha

Conclusion

We will spot what things look for illustration complete nan adjacent mates years, but I’m expecting higher lipid prices for nan astir part. While Altria is still undervalued, I don’t deliberation nan risk/reward is adjacent to these 2 companies. That is why I sold my shares of Altria and reinvested successful Petrobras and Ecopetrol. For maine it was a elemental opportunity costs calculation. If you purely want to look astatine dividend income, nan shares of Altria I sold were worthy astir $20,000, which would person provided a spot much than $1600 successful income complete nan adjacent year. I bought 1,000 shares of PBR.A and 1,000 shares of Ecopetrol connected Monday morning. Petrobras will salary complete $1000 by June, and different payout successful nan 2nd half of nan twelvemonth is possible. Ecopetrol will salary complete $2,000 complete nan adjacent 9 months.

I won’t make projections for 2024, but I deliberation nan downside consequence is limited, and I couldn’t walk up nan opportunity to double my dividends for 2023. By swapping retired Altria for Petrobras and Ecopetrol, I get nan chance to bargain ungraded inexpensive assets, pinch plentifulness of juice connected nan upside owed to nan valuation and imaginable for a tally higher successful lipid prices, and a monolithic income watercourse astatine nan aforesaid time. Is location governmental risk? Sure. Does that mean investors should disregard markets extracurricular of nan US? I don’t deliberation so. I deliberation Altria should do good complete nan adjacent mates years, but I will simplify things for illustration this: buying shares of Petrobras and Ecopetrol looks to maine for illustration spotting a elephantine heap of money that immoderate investors person thrown distant prematurely. I conscionable took nan clip to fig it retired and spell complete to prime it up.

This article was written by

BeanKounter Capital floor plan picture

CPA and erstwhile Big 4 auditor. I break down investments successful qualitative and quantitative terms, and I look for investments that will compound my money complete nan agelong term.

Disclosure: I/we person a beneficial agelong position successful nan shares of PBR.A, EC either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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