Brazil has been the jewel of Latin American economic growth and with her prosperity has come an increase in energy consumption. In addition to being one of the world's fastest growing economies, the Energy Information Administration lists Brazil as the tenth largest energy consumer in the world and the third largest in the western hemisphere, trailing only the U.S. and Canada. A large portion of Brazil's energy demand is satisfied with electric power generated at companies like Brazilian-based CPFL Energia (NYSE:CPL).

Brazilian Growth
Brazil's economy is expected to grow at an annual rate of 4.1% through 2012. ANEEL, the Brazilian Electricity Regulatory Agency, estimates the country's market for electric power is growing at an annual rate of 4.5%. CPFL Energia distributes, generates and commercializes electricity in Brazil. In 2007, it provided service to 6.3 million customers in a country with a population of approximately 189 million people. ANEEL reports that the greatest opportunities for investment in the Brazilian electricity market exist in the areas of new generation power sources and privatization of assets.

CPFL's Growth Strategy
To serve Brazil's burgeoning energy demand, CPFL Energia has a three-year plan to increase generation capabilities at existing facilities. During the first half of 2008, CPFL Energia increased operating revenue by 2.20% to R$6.382 billion ($2.977 billion) over the prior year. However, CPFL Energia's increased expenditure on personnel, materials, and outsourced services caused its operating income to decline -26.73% during the same period.

Rising Acquisition Costs
CPFL Energia's rising costs can be attributed, in part, to the acquisition of CMS Energy Brazil - a former division of CMS Electric and Gas and parent company CMS Energy (NYSE:CMS). By acquiring CMS Energy Brazil , CPFL Energia has positioned itself for greater access to the growing energy needs of Sao Paulo - the largest city in Brazil, with a population exceeding 10.9 million people. Expansion into densely populated cities like Sao Paulo contributes to CPFL Energia's long-range growth strategy. (To learn more about acquisitions, read Analyzing an Acquisition Announcement.)

Comparison
CPFL Energia has outperformed the -34.81% return of the iShares Dow Jones U.S. Utilities Index (AMEX:IDU) since the beginning of the year. IDU has been dragged down by difficult market conditions for the fund's largest holdings, including Exelon Corporation (NYSE:EXC), Southern Company (NYSE:SO), Dominion Resources (NYSE:D) and FPL Group (NYSE:FPL). CPFL, on the contrary, is down -20% prior to its attractive 10% dividend yield being factored into beginning-of-year prices. (To learn more about dividends, check out How and Why Do Companies Pay Dividends?)

Final Thoughts
While utilities investments may not tickle your fancy, they make a lot of sense during these tough economic times. For potential investors, CPFL Energia can be considered a power generation company that is booming in an emerging marketplace. It boasts an above-average dividend and a comprehensive growth plan to boot.

Related Articles
  1. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  2. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  3. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  4. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  5. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  6. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  7. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  8. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  9. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  10. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center