Best Dividend Payouts Since 2009 Lure UBS to Brazil, South African Stocks

Stocks in Brazil and South Africa are the “best in class” for emerging-market investors seeking dividends after yields climbed to the highest levels since 2009, according to UBS AG.

This year’s 22 percent drop in Brazil’s Bovespa index has lifted its dividend yield to 4.6 percent, the highest since February 2009, while the yield on the FTSE/JSE Africa All Shares Index jumped to 2.8 percent from 2.3 percent at the start of 2011, data compiled by Bloomberg show. Dividends in South Africa may grow at a 17 percent rate during the next three years, according to the data.

Increasing payouts, which account for about 33 percent of emerging-market equity returns, may attract investors to phone companies and utilities as the global economy slows and yields on fixed-income securities decline, according to Jennifer Delaney, an emerging-market analyst at UBS in New York. Dividend yields in Brazil are almost twice the 2.3 percent rate in Russia and compare with yields of less than 2 percent in India and South Korea, according to data compiled by Bloomberg.

“We haven’t seen anywhere near as much an increase in dividends as we think we can get,” Delaney said in a phone interview on Aug. 22.

Light SA (LIGT3), which produces electricity in Rio de Janeiro, has a dividend yield of 7.5 percent based on the average of 11 analysts’ estimates for 2011 payouts. The stock trades at 9.8 times earnings forecasts, compared with an average of 15 times for Latin American utilities, according to data compiled by Bloomberg.

Dividend Growth

Dividends in Brazil have been supported by regulations that require companies to pay out a minimum 25 percent of net earnings to shareholders, according to Nick Robinson, head of Brazilian equities at Aberdeen Asset Management in Sao Paulo.

“If you talk about the market in broad terms, now is a decent opportunity to get into companies at pretty decent valuation levels,” Robinson said in an Aug. 16 interview.

MTN Group Ltd. (MTN), Africa’s largest mobile-phone operator, may boost its annual per-share payout by 27 percent next year, according to the average of 14 analyst estimates. The stock is yielding 5 percent based on its estimated 2011 distribution, compared with 3.9 percent for regional peers, data compiled by Bloomberg show. MTN said on Aug. 17 it plans to pay out 65 percent of earnings to shareholders.

Bank Payouts

MTN shares climbed 0.2 percent at 1:18 p.m. in Johannesburg, while the FTSE/JSE Africa index increased 0.7 percent. The MSCI Emerging Markets Index rose 0.1 percent.

South African banks have refrained from boosting payouts on concern they may need to conserve cash to meet new capital requirements from the Basel Committee on Banking Supervision, according to Neville Chester, the Cape Town-based manager of Coronation Fund Managers Top 20 Fund, which has about 7.5 billion rand ($1.04 billion) in assets under management.

Standard Bank Group Ltd., Africa’s largest lender, kept its dividend unchanged for the six months to June 30 even as profits rose 12 percent during the period. Chief Executive Officer Jacko Maree said the Johannesburg-based bank will give more clarity on dividends when it announces full-year results in March 2012.

“Until there is regulatory certainty they are unlikely to” pay higher dividends, Chester said. “They don’t want to upset the regulators and also don’t want to pay out dividends now and ask for more capital in a year or two.”

Relative Returns

Dividend yields on the broader South African market are still rising relative to government bonds. The FTSE/JSE Africa index has retreated 7.8 percent this year, pushing up its yield to the highest since June 2009 relative to government’s notes due 2015, which yield 6.65 percent, according to data compiled by Bloomberg.

The Bovespa’s payout is the highest on a monthly basis since at least 2002 versus the return on local-currency government bonds, which yield 11.4 percent, according to JPMorgan Chase & Co.’s GBI-EM Index.

Profits for companies in the South African benchmark equity index will probably climb 13 percent next year, while earnings in Brazil’s Bovespa grow 12 percent, according to analysts’ estimates compiled by Bloomberg. South Africa’s economy may expand 3.8 percent in 2012 while Brazil’s is poised to grow about 4.1 percent, according to April estimates from the Washington-based International Monetary Fund.

Companies “are still seeing growth opportunities,” said Delaney at UBS, Switzerland’s biggest lender. “But on top of that, even after growth, there is still plenty of profit that can be paid back to shareholders.”

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.

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