A large appeal of dividend growth investing is the power of those reinvested dividends over time. A high dividend yield is great, but if it’s not growing over time, the opportunity cost to the investor is just too high. High dividend yields simply aren’t enough.
That’s why international dividend paying stocks are such a great hunting ground. With the long-term, secular growth in the non developed markets, the world-class companies of tomorrow can be purchased today at great yields that are only going to grow over time. Brazil is one such market that has a great long-term growth story with political stability (corporations won’t be nationalized) and good fundamentals (strong export-led economy with a robust consumer segment). Everyone knows about Vale (NYSE:VALE) and Petrobras (NYSE:PBR), Brazil’s two 800 lb. gorillas. Similarly, AmBev (ABV) (the world’s fifth-largest brewer, third-largest Pepsi bottler and the sole bottler of Pepsi in Brazil) is a top dividend paying stock that we’ve highlighted before.
One much less known name is CPFL Energia SA (NYSE: CPL) which is a Brazilian utility that serves 6.4 million customers in Sao Paulo and Rio Grande do Sul. A strong economy, coupled with robust population growth (especially among the middle class) means more and more Brazilians are using power. This means increased earnings for CPL and (because management is committed to creating value) increased dividends to shareholders.
The stock currently yields about 7% and dividends have grown by 27% over the last 5 years. Brazil has no withholding tax on dividends and payments are made in Reals and converted to USD. This is another reason I’m a long term fan of international dividend payers. Buying a fractional ownership of a non-USD earnings machine is a great way to protect your hard earned wealth over the long haul (despite the near term strength of the USD, America has not been good about protecting its currency over the decades. When growth and money velocity finally start to tick up, inflation will rear its ugly head and start chipping away at our dollar denominated assets). Furthermore, the top 3 institutional holders are Swiss investment group Vontobel Asset Mgmt, value fund Mondrian Investment Partners and Boston-based Arrowstreet Capital.
Investments in stable, cash-flowing industries (Utilities) in fast growing markets are a fantastic combination for dividend growth investing. Brazil was once the poster child for income disparity but its middle class is now nearly 50% of the total population. As this trend continues, investors can expect to be rewarded in this name for decades to come.