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Brazil, S. Africa Stocks Lure UBS on Payouts

Stocks inBraziland 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 years 22 percent drop in Brazils 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

inNew York. Dividend yields in Brazil are almost twice the 2.3 percent rate

inRussiaand compare with yields of less than 2 percent inIndiaandSouth

Korea, according to data compiled by Bloomberg.

We havent 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.

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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 inSao 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), Africas largest mobile-phone operator, may boost

its annual per-share payout by 27 percent next year, according to theaverage 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.

South African banks have refrained from boosting payouts on concern they

may need to conserve cash to meet newcapital requirementsfrom theBasel

Committee on Banking Supervision, according to Neville Chester, the CapeTown-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

Standard Bank Group Ltd.,Africas 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 dont want to upset the regulators and also

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dont want to pay out dividends now and ask for more capital in a year or

two.

Dividend yields on the broader South African market are still rising relative

togovernment bonds. The FTSE/JSE Africa index has retreated 7.8 percentthis year, pushing up its yield to the highest since June 2009 relative to

governments notes due 2015, which yield 6.65 percent, according to data

compiled by Bloomberg.

Relative Returns

The Bovespas payout is the highest on a monthly basis since at least 2002

versus the return on local-currency government bonds, which yield 11.4percent, 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 Brazils Bovespa

grow 12 percent, according to analysts estimates compiled by Bloomberg.

South Africas economy may expand 3.8 percent in 2012 while Brazils is

poised to grow about 4.1 percent, according to April estimates from the

Washington-basedInternational Monetary Fund.

Companies are still seeing growth opportunities, said Delaney at UBS,

Switzerlands 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 atsgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin atgserkin@bloomberg

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