Top 3 Dividend Stocks in Latin America

Includes: ABEV, PVD, YPF
by: Nicholas Pardini

It is a great time to invest in Latin America, because unlike the emerging economies in Asia, Latin American nations lack ethnic and religious strife and fuel their economic growth with their domestically available natural resources. In addition to growth stocks such as Petrobras, Vale, and Mercadolibre, Latin America offers some value in dividend income through these high yielding stocks.

Ambev (ABV)- Ambev is the leading beverage company in Latin America and a subsiadary of Anhauser Busch Inbev. It sells Brazil's top two brands of beer along with Pepsi (NYSE:PEP) products across South America. Out of all the companies on this list, Ambev has the strongest financial condition with a 0.27 debt/equity ratio, and ROIC of 25.71%, and a 31% profit margin. Ambev also pays a high, but irregular dividend with a 3.84% yield.

YPF S.A. (NYSE:YPF)- YPF is Argentina's leading integrated oil and gas company holding a 38% market share. It pays a generous dividend, which has the stock yielding at 7.5%. The rest of the company's financials are in solid shape with its long-term debt amounting to just 9% of equity and low P/E and PEG ratios at 11.47 and 1.48 respectively. Oil companies should be safe from the inflationary issues that plaguing Argentina, but this a serious systematic risk that investors need to watch out for.

A.F.P. Provida SA (NYSE:PVD)- This company specializes in running the privatized social security pension funds in Chile (PVD is one of two companies legally allowed to manage these funds). The company charges high management fees, and locks in clients due to the nature of government mandated retirement programs. With the highest standard of living among South American countries (PPP adjusted GDP per capita) and a wealth of natural resources such as copper, Chile's economy is the most stable in Latin America. Buying PVD takes advantage of the continual growth of Chile and the aging of its population. With a P/E ratio of 8.45, an ROIC of 26%, and a very high dividend yield of 8.97%, A.F.P. Provida is the best bet for long-term income oriented investors in Latin America.

Overall, through these three companies, investors can experience the growth opportunities of Latin America with a sizeable dividend income. More growth oriented investors should buy Ambev, for its high efficiency and expected demand increases from wealthier emerging market consumers and tourist revenue from major events such as the Olympics and the World Cup. A.F.P. Provida, on the other hand, is the best pick for income investors due to its near 9% yield and stable client base.

Disclosure: I am long ABV.