Brazilian energy play Companhia Energetica de Minas Gerais (CIG) has been around since 1952, and while the stock price once crested $10, it now changes hands at around $2. Revenues have been fairly stable over the past decade, though, and while the debt load is not light, it has been dropping, notes Benj Gallander, president of Contra the Heard.
The company is primarily in the electricity business, with 70 hydroelectric, solar, and wind plants, including approximately 545,000 kilometers of distribution lines and about 2,300 kilometers of transmission lines. Besides electricity, it transports and distributes natural gas, and runs a host of related enterprises, with IT infrastructure and management front and center.
There have been at least two dividends every year since 2009, with four this year. The payout jumps around like crazy and the current yield of around 6% cannot be expected to be stable. One can wonder if a cut might be in the cards. If it is, that would almost assuredly negatively impact the stock price.
Companhia Energetica de Minas Gerais (CIG)
At the same time, sometimes a fat payout is thrown into the mix. And to be fair, the fact the company makes money year after year does offer a sense of comfort. The profits remain remarkably steady, too – no big ups or downs.
One wild card the company must deal with is Brazilian politics. Currently, the President for the second time is Luiz Inacio Lula da Silva. He regained power in October. When Jair Bolsonaro was defeated, his supporters attacked federal government buildings, attempting to thwart the transition of power. To pacify some of the populace, he might consider nationalization of enterprises such as CIG. The probability remains low, but it is not out of the question.
An additional potential trouble spot for investors is currency risk. The Brazilian real has taken a pounding over the last dozen years. The chart seems to indicate that it might be bottoming, but of course, that is not certain. For our part, we are comfortable betting that the real will increase in value, rather than decrease.
Overall, people who are willing to shoulder the danger might want to tuck this stock away and wait a number of years. There is a reasonable possibility that it could have outsized gains with a combination of the dividend and capital appreciation. Better than a double – to the possibility of a quadruple to where the ticker traded before – is conceivable.
