EWZ: Huge Dividend Yield Is Worth The Risk

Summary

• After the recent selloff in Brazilian stocks, the iShares MSCI Brazil ETF has seen its dividend yield rise back up to 6.8%, while the underlying index now yields 9.7%.
• The 9.7% dividend yield on the MSCI Brazil is largely the result of two major stocks - Vale and Petrobras - which trade at extremely cheap valuations.
• Recent weakness in the BRL has undermined the EWZ but a strong terms of trade position and high real bond yields suggest the currency is well supported.
• While uncertainty is rising ahead of the October general election, particularly with Brazilian President Jair Bolsonaro looking unlikely to accept any defeat, the risk-reward outlook remains highly favorable.

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After the recent selloff in Brazilian stocks, the iShares MSCI Brazil ETF (NYSEARCA:EWZ) has seen its dividend yield rise back up to 6.8%. Meanwhile, the yield on the underlying MSCI Brazil index has risen to 9.7%, which

Analyst’s Disclosure:I/we have a beneficial long position in the shares of EWZ either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.