Investments and final thoughts
I would not invest in Petrobras for one big reason; it is still 64% owned by the Brazilian government and the current administration hasn’t made any major reforms nor plans on doing so for a while. While Petrobras does pay out a 3.7% dividend yield, it trades at a PE (trailing-12 months) of 10, which is higher than other big oil companies. I would stay away from it as government-run companies are notorious for being ineffective and inefficient with their investments and cash flow, just look at Russia’s Gazprom.
If I were to play this I would look primarily at Exxon Mobil Corporation (NYSE:XOM) because of its recent focus on growth in North American production, which so far has panned out well.
ExxonMobil pays out a 2.7% dividend yield and trades at a PE (trailing-12 months) of 9.2, but is expected to only grow at a snails pace over the next few years. It does, however, have a low payout ratio of 23% and has the possibility to significantly boost output if it gets into Mexico’s petroleum sector and continues to focus on boosting US oil production.
If you want a stable investment with dividend growth and future catalysts in the coming years, Exxon Mobil Corporation (NYSE:XOM) is the stock for you. A 23% payout ratio is significantly less than the industry average of 64.5%, so there is a lot of room for the company to boost its yield.
Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is also worth looking at but for a different reason. It has a payout ratio of 41.5% and a dividend of 5.5%, so it has less of an incentive to boost its dividend yield. Shell trades at a lower PE (trailing-12 months)) than ExxonMobil at 7.9 but is expected to grow by even less in the next few years. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is worth investing in if you want a dividend yield of more than 5.0%, and ExxonMobil is worth investing in as it could potential boost output significantly in the next few years if it gets to tap Mexico’s oil plays. Exxon Mobil Corporation (NYSE:XOM) could also easily boost its dividend by 50% if it raised its payout ratio up to 35%. I’m bullish on Mexico’s privatization and the future growth of Mexican oil output.
The article Mexican Privatization Could Bolster Dividends originally appeared on Fool.com and is written by Callum Turcan.
Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro (NYSE:PBR) S.A. (ADR). Callum is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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