Top Dividends In This Emerging Market [Petroleo Brasileiro Petrobras SA (ADR), Vale SA (ADR), VIVUS, Inc.]

brazilian-mapMarshall Hargrave: Brazil, despite its somewhat sluggish economy, has been a big winner in the stock market.

The iShares MSCI Brazil Index is up nearly 29% over the last six month. Meanwhile, the S&P 500 is up just 11%.

Helping drive the emerging market’s outperformance has been the prospect that there might soon be a new President leading Latin America’s largest country.

Hopefully a President that’s more business-friendly.

Under the current President, Dilma Rousseff, Brazil’s economy has slipped into a state of stagflation. The plateauing of employment rates and rising wages is also working against incumbent President Rousseff.

Brazil still has plenty of growth left and could see impressive growth in its middle class over the coming years. Over 7 million of its people are still living off around a dollar a day.

Even if Rousseff is re-elected, she won’t have to worry about another election until 2017.

Thus, regardless of how the elections play out in October, the government should be more accommodative to its largest businesses in the near-term.

Here are the top 3 dividends in this emerging market:

Emerging Market Dividend No. 1: Petroleo Brasileiro Petrobras SA (NYSE: PBR)

Petrobras offers a 4.35% dividend yield, but its recent dividend history is spotty. The real reason to invest in this state-owned oil and gas company is the company’s vast resources and production potential.

Petrobras has a commitment to reward shareholders proportionally with its profit. More profits means a potential return to the days of $1 a share dividends we saw back in 2012 and 2011.

Petrobras is the largest publicly-traded Latin American oil company. It’s also one of the few ways to invest in the Latin American oil industry. It produces and refines nearly all of Brazil’s oil and is considered a “quasi-monopoly.”

It trades at a P/E (price-to-earnings) ratio of just 7.5 based on next year’s earnings estimates. Along with Wall Street’s earnings growth expectations, Petrobras is a very enticing growth at a reason price opportunity, trading at a P/E to growth (PEG) ratio of just 0.7.

Petrobras has been an under-performer over the last year or so, because the government forces it to sell gas to consumers at a loss. The idea is that this helps control inflation.

If the Brazilian government allows Petrobras to increase fuel prices, which could happen after the Presidential election, this will be a big positive for the oil giant. 

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *