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 important that an investor knows and understands the risks before investing in an emerging market.
Macro-Economic Conditions
Dr. Ed Yardeni from Yardeni Research produces a revenues and earnings growth report. This report uses market analysts' EPS forecasts to produce earnings growth estimates for all MSCI regional indices. According to this report, the MSCI Brazil 25/50 index's EPS increased by 8.3% in 2019. From 2018 to 2019, EWZ's dividends increased from $ 1.1053 to $ 1.2059 (9.10%). EWZ's dividends and MSCI Brazil index's EPS have a tendency to grow at close to the same rate.
