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A Brazil-Focused Dividend Portfolio

Published Tue, 13 Oct 2020 22:51:49 -0400 on Seeking Alpha

Seeking AlphaDividend StrategyA Brazil-Focused Dividend PortfolioOct. 13, 2020 10:51 PM ET|| Includes: BBD, BBDO, BDORY, BSBR, CIG, CIG.C, CPL, CYRBY, EBR, EBR.B, EWZ, HYPMY, IOCJY, ITUB, PBR, PBR.A, VALEby: James CherryJames Cherry Long/Short Equity, portfolio strategy, Deep Value, long-term horizonSummaryFour out of thirty-seven Brazilian ADRs scored five out of five on the dividend binomial test and they have an equalweight average 2022 forward dividend yield of 7.6%.
My preliminary tests show that my Brazilian Dividend Portfolio should produce a dividend yield of over 7%.
I believe it is possible to have a Brazilian dividend portfolio that produces a dividend yield greater than that of EWZ.
As of the 5th of October, iShares MSCI Brazil Capped ETF (EWZ) had a TTM dividend yield of 3.42%. In this article, I hope to answer if it is possible to create a dividend-focused portfolio with only Brazilian ADR that can outperform EWZ's dividend yield. My investment thesis is simple; analysts are expecting EPS to grow by over 100% in 2022, and dividends should grow too. For those who don't know, Brazilian law requires corporations to pay out a minimum of 25% of its earnings to shareholders.
Throughout the course of this article, I will consider interest on equity and dividends as just dividends. To the best of my understanding, interest on equity is treated the same as dividends for U.S. tax purposes.
The stocks mentioned in this article are all Brazilian stocks. Investors are exposed to the Brazilian Real, which has devalued significantly over the past several years. During periods of high market volatility, the correlation between Brazilian equities and the BRL increases, causing investors to lose money at a rate faster than they might normally experience in the United States. Several of the companies mentioned in this article were involved in one of the following political corruption scandals: Operation Car Wash, Operation Weak Meat, and Operation Vegas. It is... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
VALE 12.17   18.7 0.65 0.00 6.74
CIA ENERGETICA DE MINAS GERAIS 3.56   15.5 0.23 0.09 2.71
PETROLEO BRASILEIRO 14.71   11.9 1.24 0.31 2.11
CPFL ENERGIA S.A. 15.73   12.7 1.24 0.23 1.48
BANCO BRADESCO 8.33   11.8 0.70 0.04 0.51


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