Latin America as a region has avoided the worst of the financial crisis. Combing strong international reserves, manageable debt and a financial system that was not exposed to toxic assets or reliant on foreign funding to the extent of some other nations, the region has steered its ship past the major icebergs. Its economies, which once were fraught with periods of strife, hyperinflation and meltdowns, have become one of the major catalysts for future global growth.

IN PICTURES: Top 10 Solutions For A Big Tax Bill

Through the latter part of 2009, investors returned to the risk trade, looking for quickly growing assets, including Latin American securities. Now, analysts are warning that many asset classes have reached their highs. The iShares S&P Latin America 40 Index (NYSE:ILF) was up approximately 100% in 2009. Investors have shifted their focus to manage risk and return to dividend and value oriented investing. Investors shouldn't give up on emerging markets just yet. While volatile, these markets can help power a portfolio past the ugly hand off inflation and produce great gains. Ignoring them for long-term portfolios just isn't an option. However, there are ways to play them that help reduce risk, while still playing the powerful consumer driving thesis.

Flipping a Switch, Turning a Tap
Traditionally a boring sector, utilities provide all the necessities required for modern life; electricity, water, gas, phones etc. The overall sector represents stable cash flows and recession resistance. For emerging markets, utilities provide access to a growing business environment, which will cause growing incomes and demand for their services. They often pay outsized dividends which can help cushion the volatile nature of their home markets or provide a nice paycheck for those seeking to replace lost income.

Adding the Service Providers
While there are a few exchange traded funds that track foreign utilities such as the SPDR S&P International Utilities Sector (NYSE:IPU), there are no emerging market utilities based funds, yet. We'll likely see one, eventually. However, due to their capital intensive nature, many strong foreign utilities have IPO'ed on U.S. exchanges and trade as ADRs. Investors have a wide range of choices for choosing Latin American stocks within the sector. Here are a few top picks.

CPFL Energia S.A. (NYSE: CPL) is one of the top yielding electric companies, foreign or domestic, currently paying a healthy 6.9% dividend. With a market cap of nearly $10 billion and controlling 13% of the Brazilian power market, CPFL reported earnings growth of 66%. Analysts predict earnings growth in the 55-57% range for the current quarter.

Just as important as current yield, how a company grows that distribution over time is the hallmark of good income investment. Having a dividend growth rate over the past few years of 54%, Companhia Energetica de Minas Gerais (NYSE:CIG) or CEMIG has one of the fastest dividend growers in the sector. Earnings grew at an incredible 140% over the last quarter and the shares yield 4.7%.

Companhia de Saneamento Basico (NYSE:SBS) is Brazil's largest water utility with nearly 197 water treatment facilities and 438 sewage treatment facilities. The company pays a 2.92% dividend, but the real kicker is that shares of the water utility trade for a P/E of 17, and are well below its book value of $53.

Companhia Paranaense de Energia (NYSE:ELP) is an electricity generator and distributor in Brazil's Parana state. The company also functions as telecommunication and I.T. provider through various partnerships it has developed. COPEL has a strong balance sheet with net cash of R$23 million ($13.1 million in U.S. Dollars), and pays a small dividend. Shares trade at cheap P/E of 7.82.

The Bottom Line
Latin America is one better positioned region in the emerging market space for continued portfolio growth. Adding a touch of utilities allows investors to stay invested in the nations and the growing consumer story, while managing risk. The previous picks along with Centrais Electricas Brasileiras (NYSE:EBR) are excellent ways to play that sector. (This asset class has left much of its unstable past behind. Find out how to invest in it. Read Investing In Emerging Market Debt.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!