Look At Companhia Energetica Minas Gerais For A 'Safer' Brazilian High Yield Stock

Jun. 6.12 | About: Companhia Energtica (CIG)

It is time again to take a look at another stock at the top of the dividend yield listing of international companies trading at ADRs in the U.S. Companhia Energetica Minas Gerais - Cemig - (NYSE:CIG) is listed as the highest yielding stock from Brazil and all of Latin America. For an investor who wants a high yield investment with emerging market exposure, Cemig deserves a closer look. And if you follow high-yield ADRs - or would like to - you know that sometimes figuring out the actual yield to U.S. investors can be problematic. That discussion will be tackled here also.

Cemig is one of the largest utility companies in Latin America. The company generates earnings through the generation, transmission and distribution of electric power. Generation and distribution account for about 40% each of EBITDA with transmission accounting for the balance. Cemig has operations in 22 of the 26 Brazilian states and in Chile. The company has a 7% market share in generation and 12% of distribution in Brazil with a goal of becoming a 20% provider of power in the country. Cemig is also expanding into natural gas distribution. The company has grown revenue and net income for each of the last three years. For the first quarter of 2012, Cemig reported a 20% increase in net income on a 15% rise in net revenue. Total power sold was up by 2.6%. The Brazilian state of Minas Gerais holds 51% of the Cemig common shares. The shares traded in the U.S. under the symbol are technically preferred shares, which is the more widely traded class of Cemig shares and earn dividends at the same rate a the common shares.

The Cemig dividend policy is to declare an annual dividend at the end of April of about half of the prior year's net income. The dividend is split into two payments which are paid out to shareholders in June and December. In addition to the regular dividends, Cemig may also declare an extraordinary dividend to be paid in December and has fairly regularly declared and paid stock dividends when the regular dividend is announced at the end of April each year. Here is a listing of the dividends paid over the last few years. Dividend amounts are in Brazilian Reals.

  • 2012: Regular dividend amount: R$1.897 plus a 25% stock dividend with an ex date on April 30, the ex-dividend date of the regular dividend payment.
  • 2011: Regular dividend: R$1.7535, Extraordinary dividend: R$1.246.
  • 2010: Regular dividend: R$1.501, 10% stock dividend, Extraordinary dividend: R$1.319.
  • 2009: Regular dividend: R$1.902 plus a 25% stock dividend.

The current share trading price in Brazil is R$34.72, which gives the shares a 5.5% yield based on the declared 2012 regular dividend. Over recent years, the regular plus extraordinary dividends and stock dividends have pushed the yield to investors up into the double-digit range. Putting some shares of Cemig into your brokerage account should result in a tidy pile of cash accumulation after several years of earnings.

The danger of owning Cemig is the slowing of Brazilian economic growth and the resulting weakness in the Real. So far this year, the Cemig shares have weathered both the drop in the Brazilian stock market and the weakness of the Real. Through the first five months of 2012, the iShares MSCI Brazil Index ETF (NYSEARCA:EWZ) is down about 10% and CIG is up 20%.

CIG ChartClick to enlarge

CIG data by YCharts

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.