10/18/2010 1:00 pm EST
Bryan Perry, editor of Cash Machine, says a Brazilian utility offers great exposure to the Latin American giant’s rapid growth while paying out a healthy—if unsteady—dividend.
Brazil has scored a double-barreled coup—hosting the FIFA World Cup in 2014 and the summer Olympic Games in 2016.
Opportunities for big investment returns are ripe in Rio de Janeiro and San Paulo as the country prepares for these events.
Even though investors already have booked big profits from Brazilian stocks, it's still early in the big-picture investment theme for the country.
The current population of Brazil is about 200 million, ranking it fifth largest in the world. The population growth rate is approximately 1.2% annually. Brazil's economy now is valued north of $1 trillion, and ranks as the eighth largest in the world. The economy [is projected to] increase 7.5% in 2010, the most since 1985.
Roughly 74% of Brazil's 200 million people have moved from rural areas to the fast-growing cities. As you might expect, this migration is placing demands on education, health care, housing, and energy.
Hydropower accounts for nearly 80% of all electricity generated in Brazil, and CPFL Energia SA (NYSE: CPL) is the largest electric utility in Brazil's capital city of San Paulo. It now operates six hydroelectric plants serving more than six million customers with a capability of generating 1,100 megawatts, enough to facilitate growth for the next five years.
With a market capitalization approaching $12 billion and an annual growth rate of around 20%, it's truly one of Latin America's premier big-cap growth stocks and should provide consistent expansion and steady dividends as the Brazilian story continues to unfold.
The company looks to earn $5.00 per share this year and $5.80-$6.00 for 2011, representing roughly 20% growth in net income on sales approaching $7 billion. These are returns US utilities can only dream of. The next earnings report is slated for November 10th, and if the pattern of the last three quarters holds true, CPL should surprise to the up side.
Unlike traditional domestic utility dividend policies that strive to maintain payouts at a stable rate, CPL's dividend rate fluctuates every quarter in relation to the bottom line. This makes for a more interesting ride on your capital invested—not knowing how much the dividend will be from payout to payout.
With a stabilized economy under the current political system and growing demand for electricity to support San Paulo's burgeoning growth prospects, CPL is a high-dividend value stock investors should seek to own on any bouts of weakness.
Shares of CPL, along with most every other leading emerging market, have sprinted higher during the abnormally strong month of September. The stock rallied from $68 to $74, even after trading ex-dividend, and currently is ticking higher on strong fund flows into emerging markets and the prospect of good earnings to be released one month from now. Buy CPL under $73, and don't pay over $75. (It closed around $74 Friday, yielding 7.6%—Editor.)