This is a guest contribution published on November 30th, 2020
The Brazilian market is booming again. The Bovespa index, the main index in the Brazilian market, is trading at 110,000, approaching the historic maximum of 115,900 points that was reached in December 2019.
Despite the pandemic that plagued the world in 2020, causing many companies to cut or suspend their dividends, a few companies have shown themselves to be resilient in growing and maintaining their dividends. In this article we will review 3 high-yield dividend stocks on the Brazilian Stock Exchange that have safe distributions.
High-Yield Brazilian Stock #1: BB Seguridade (BBSEY)
BB Seguridade is a holding company controlled by Banco do Brasil S.A. that operates in the insurance industry and is organized into two segments: distribution business and risk and accumulation business.
The distribution business sells, through BB Corretora, products such as open pension, private plans, capitalization bonds, dental assistance, and insurance. The risk and accumulation businesses, on the other hand, operate in the form of joint ventures with private partners that operate in the same distribution business segments.
BB Seguridade presented a very positive result in 3Q20 with adjusted net income of R$1.1 billion. Compared to 3Q19, this was an increase of 1.4%. This increase may seem small, but in a difficult year in which many companies had big losses, generating positive growth is a positive highlight.
Adjusted ROI in the last 12 months is 70.2%. This number demonstrates the strength that the company has to grow without the need for major investments. The positive highlight was in the distribution business with BB Corretora, which reached R $999.1 million in brokerage revenues. This represented an increase of 12.5% compared to 3Q19.
With these results, BB Seguridade distributes 9.4% in annual dividends. You can also find BB Seguridade on the OTC Market with the BBSEY ticker.
High-Yield Brazilian Stock #2: Telefônica Brasil (VIV)
Telefônica Brasil S.A. is the largest telecommunications company in Brazil offering fixed and mobile phone, fixed and mobile broadband, ultra broadband, digital data and services, IT and pay TV. Currently, VIV has more than 90 million customers, 74 million of whom come from mobile service.
The company has 3 relevant spectrum frequencies in the mobile operation covering 89% of the Brazilian population with 4G, in addition to offering 4.5G in 1407 cities. In the fixed telephony operation, they offer services in 287 cities.
VIV is controlled by the Spanish Telefónica Group, which has been in the communications business for more than 90 years worldwide. The Telefónica Group operates in 13 countries, in Spain under the Movistar brand, in Germany and England under the O2 brand and in Brazil under the Vivo brand.
Vivo had net operating revenue of R$10.8 billion in the 2020 third quarter, with a slight decrease compared to 3Q19. However, net income was R$1.2 billion, an increase of 25.5% compared to 3Q19. This positive result was due to the decrease in tax expenses, lower interest rates in the country and lower net debt. The net debt-to-EBITDA ratio of the last 12 months is a very low 0.27x.
The company declared the gross amount of R$650 million in dividends for the year 2020. The payment will occur in 2021 for holders as of September 27th, 2020. VIV will pay around 7% in dividends.
High-Yield Brazilian Stock #3: Engie Brazil (ENGIY)
Brazil is an emerging market, and therefore energy is in high demand. There are all forms of energy generation in Brazil such as hydroelectric, nuclear, solar and wind. Brazil seeks to have only clean energy and Engie has approximately 90% of its capacity in these renewable sources.
Engie is the largest private electric energy producer in the country. It has 61 plants representing 6% of the country’s capacity. In addition, Engie has the largest natural gas transportation network in Brazil. There are approximately 4500 km crossing 10 states. This capacity was reached after the acquisition of TAG (Transportadora Associada de Gás). In 2019 Engie’s turnover was R$10.5 billion. The group is also traded on the Paris and Brussels stock exchanges.
During the pandemic, Engie has been very resilient. In 2Q20, profits increased significantly compared to 2Q19. In 3Q20, even with some losses, the result was very satisfactory. Net operating revenue increased 28.7%, reaching R$3.2 billion.
Revenue increased by 3.8% due to the higher average selling price of energy, but sales volume fell by 4.3% due to lower energy consumption during the pandemic. In this way, we can see that the impact was caused by the pandemic and not by the company’s management. With the end of the pandemic, we can predict an increase in energy consumption.
Due to significant investments, operating costs grew 43.5%, reaching R$2 billion. However, these investments are expected to turn a profit as of the end of 2021. In relation to its debts, there was an increase of 8.3% due to the contracting of loans and financing for the construction of the Campo Largo wind farm of the New Transmission System State. Currently, the net debt-to-EBITDA ratio is 2x.
Engie is studying the possibility of increasing the dividend payout ratio, which today is around 55%. The combination of the increase in payout associated with the growth potential, leads Engie to a projected yield of approximately 7%.
Final Thoughts
The Brazilian stock exchange is composed of many companies with great growth potential in the long run. This article discussed three stocks from the security, telecommunications, and energy industries that have high dividend yields.
With the pandemic hopefully ending soon, Brazil will be able to return to economic growth, particularly as it continues to privatize more companies and let free trade establish itself. In this way, we have focused on stocks in Brazil related to infrastructure.
Due to their market leadership, steady profit generation, and high dividend yields, these 3 stocks are attractive for income investors that are interested in diversifying their portfolios.
