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Published: November 13, 2009
Brazil has been one of the best places for
U.S. investors for a long time.
During the past five years, the Bovespa Index, Sao Paulo's
premier index, has gained +167.0%, or +21.7% compounded
annually. The S&P 500 has gained +9.8% in the same five-year
period.
Just 17 Brazilian stocks yield more than 6%. That figure is even
more bleak for investors limited to U.S.-listed securities. Four
Brazilian ADRs qualify as high-yielders, and just one is on a
major exchange.
The good news: It's one of the biggest companies in South
America, and it yields 7%, more than three times the average
yield of the S&P 500.
CPFL Energia (NYSE: CPL) is Brazil's largest private
power distributor. It has 6.4 million customers and a 13.3%
market share. Through eight distribution companies, CPFL's
energy is used in 568 municipalities in southern Brazil.
While the company's distribution business brings in 63% of
revenue, CPFL Energia also has a power-services and a
power-generation business. The company owns and operates seven
large hydroelectric power plants and 33 smaller hydro plants.
Another large plant is planned to open next year, increasing
capacity by more than 25%.
Earnings and revenue at CPFL Energia had been climbing for most
of the decade. In fact, earnings growth averaged more than +25%
in the past five years. But the growth faded in 2008 and so far
in 2009. Although revenue has increased, net income and earnings
per share have fallen during the past 21 months because of
reduced energy demand in the shrinking economy along with higher
energy costs.
The company's dividend policy is to pay 50% of net income on a
semiannual basis. Since its first public dividend payment in May
2005, the company's dividend has grown +430%. Although the
payments have fallen off their 2007 highs due to reduced demand,
the payment was increased again in August 2009. Also, because of
the fairly flexible dividend policy, earnings cover the
distribution.
On November 11th, the company released mixed third-quarter
earnings results. Revenue increased +13.2% to R$2.7 billion but
net income fell -15.8% to R$290 million. The company said the
lower number was due to a non-re-occurring rate adjustment at
one of its subsidiaries, and without it, the quarter's net
profit would have been R$363 million, compared with $R344 in the
same period in 2008. Today, one U.S. dollar is equal to 1.73
Brazilian reals.
Going forward, earnings growth for the company will be tied to
increases in energy use, which will improve as the Brazilian
economy gains strength. Current estimates put Brazil's GDP
growth back in the black this quarter, albeit at a slight, 1.1%
annualized rate. Next year's growth is expected to be much
higher at 3.8%.
With a captive customer base in some of Brazil's wealthiest
states, CPFL is well-positioned to benefit as the economy
recovers. And that's starting to take place right now.
-- Anthony Haddad
Staff Writer
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