Brazilian integrated energy giant Petroleo Brasileiro SA (PBR), has been a dividend machine of late, paying $5.16 per share in dividends so far in 2022. That’s quite remarkable for a stock that trades near $13.60 per share. The hefty payouts are thanks to the Brazilian government’s controlling stake in Petrobras, and Brazil President Jair Bolsonaro’s desire for more money to spend on programs to bolster his chances of overcoming the challenge of the former president, Luiz Inácio Lula da Silva, who is currently leading in polls by at least 10 percentage points. Brazil begins voting on October 2.
Petrobras just traded ex-dividend last Friday for a payout of $2.59 per share. The trade we do today takes advantage of the rich premium available in PBR call options. Buying the stock and selling $14 calls that expire in one month provide the potential to earn 7.7% over the next 31 days.
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Petroleo Brasileiro SA (PBR) – Buy Write
Buy 300 PBR
Sell to Open 3 September 16 $14 Calls
Execute for Net Debit of $13.00 or lower
Petrobras is a Brazil-based integrated energy company controlled by the Brazilian government. It focuses on exploration and production for oil and gas in Brazilian offshore fields. Revenue this year is expected to jump 37% to $123.4 billion, with earnings up 54% to $3.84 per share.
Because of its heavy-handed government ownership, there is political risk involved with Petrobras. President Bolsinaro earlier this year replaced the CEO of Petrobras for refusing to sell fuel at subsidized prices to Brazilian consumers, and presidential candidate Lula has indicated that he would demand even lower fuel prices in the Brazilian domestic market.
We will write September monthly calls that expire before the election begins in October.
Here is the buy write: Buy 300 PBR ($14.65 current price), and sell to open 3 contracts of $14 September 16 calls. For the combined buy write, use a net debit of $13.00 or lower. The net debit is the combined per-share cost of buying the stock and selling the call options. If your order is not filled at $13.00, you could raise the net debit by a nickel.
On the buy write, if PBR closes above $14.00 at expiration, we will be assigned on the calls we sold, and our shares will be automatically sold at $14.00, earning us $1.00 per share on $13.00 per share at risk for a total return of 7.69%. Over 31 days, that would be an annualized return of 90.6%. If PBR closes at or below $14.00 on September 16, we will still own the shares at a cost basis of $13.00 per share, reflecting the premium earned today.
Options income for this trade: Earn $195 selling 3 PBR September 16 $14 call contracts. Click here for updated bid-ask and return characteristics.
John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.
NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.
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