Time To Buy Brazilian Dividend Payers (CIG, VALE, PBR)
Steven Orlowski: Investors love dividends; they give you money in return for being a shareholder. Dividends can change however, reflecting different aspects of a company’s fortune. Three Brazilian dividend stocks may be worth a look.
Better growth rates are occurring overseas and many high yielding stocks are there as well. Brazil has been experiencing growing pains as its economy struggles and seeks to become less resource dependent. The stock market in Brazil is trading lower now than it has over the past few years. This is providing investors with an opportunity to buy shares of dividend paying companies at reduced prices.
Petrobras (NYSE:PBR) is one of the stocks that comes up immediately when discussing Brazilian stocks. PBR recently discovered new and large oil and gas reserves offshore Brazil which should contribute positively to its future. Some analysts expect the reserves to help PBR double its resource base and production over the next ten years.
The stock is trading at more than a 20% discount from earlier 2012 highs and is less than 1/3 of its price back in 2008. It has paid a dividend every year for more than a decade, although the dividend has been inconsistent. The current dividend yield is 2.5%.
Another stock that tops the list of Brazilian companies is Vale SA (NYSE:VALE), a metals and mining company. Like PBR it is trading lower than in the past but has a better defined up trend as seen in the chart below. It also has a better yield than PBR, nearly 6%, and a comparable dividend paying track record. Vale is the world’s largest iron ore producer and a major exporter to China. Its future is inextricably linked to that of China’s own steel industry. China is producing more of its own steel and as it does it will have a direct negative impact on Vale’s bottom line. This presents a risk to the stock price and a need for Vale to expand relationships with other customers.
Companhia Energetica Minas Gerais (NYSE:CIG) is a Brazilian electric company. Of the three stocks profiled in this article it has the highest yield of 12%. CIG has paid a dividend every year for the past decade except for 2007 and the dividend has varied in amount. Analyst ratings on the stock currently have a bullish bias.
The chart of CIG has me a little concerned. It displays two technical formations in combination. First, the stock experienced a double top in the spring and summer of 2012. This should have been a bearish indicator for observers at the time. This bearishness was fulfilled as the stock dropped from $20.00 per share to less than $11.00 per share by November. But the chart is also starting to look like a head and shoulders formation. The peak in July 2011 is the first shoulder; the double top can be considered the head; and the second shoulder is currently forming.
If this does play out I would expect the stock to rise to approximately $15.00 per share and then resume its decline. This is of course only a technical observation, that ignores any fundamental changes in the company’s profile which could also influence the stock price.
As major participants in their respective industries I think each of these stocks deserve a spot on watch lists if not in portfolios. For some, like CIG, there is some obvious short term risk. But as long as the Brazilian economy continues to move forward, despite intermittent setbacks, all three companies should have prosperous long term futures.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.