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. 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?
  2. 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?
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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?
  8. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  9. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  10. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
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