Cherry Picking Brazilian Equities: A Dividend Approach

Typically, Brazilian companies are generous when it comes to paying dividends.
According to Brazilian Corporate Law, shareholders are entitled to receive at least 25% of distributable income, which corresponds to net income less legal reserves, as dividends. Dividends distributed may be lower or non-existent in case the board explains to the general assembly of shareholders that dividend distribution is not consistent with the financial situation of the company. In such case, income which is not distributed as dividends should be classified as a special reserve. If the special reserve is not absorbed by losses, the dividends should be distributed in the future. Both common and preferred shares participate equally in the scheme, and this also includes ADRs. Corporate by-laws may establish higher payouts.
On top of the law, Brazilian companies typically have a family shareholding structure, which is an incentive to pay dividends, differently from companies that have a widely disperse capital structure.
When looking at the universe of Brazilian companies with securities listed on the New York Stock Exchange, we see that banks like Itaú (NYSE: ITUB) or Bradesco (NYSE: BBD) pay dividends every month, while most of the companies pay quarterly, with a few companies paying only two times a year. However, a more challenging macroeconomic environment may be a barrier to the maintenance of frequency and amounts paid out.
According to the minimum payout established... Read more