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Tuesday, February 12, 2013 - 10:00
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Tuesday, February 12, 2013 - 10:00am

Brazil is an undisputed economic powerhouse.

Not only is it the leading emerging market and the largest economy in South America, it is the sixth-largest economy in the world after overtaking England in 2011. The country's incredible rise to global prominence has been driven by its rich trove of natural resources.

Brazil's largest export is iron ore, and is the world's third-largest producer behind only China and Australia. Brazil's iron ore exports are up more than 200% in just the past three years.

Brazil is also a major player in energy. It is currently the 13th-largest exporter of crude in the world, but that's rapidly changing... The country's growth in energy got a big boost in 2006 with the discovery of the Lula oil field off its eastern coast, lifting Brazil's proven and probable reserves by 150% to 50 billion barrels. The Economist projects that will help the country rise to the sixth-largest oil producer in the world by 2020.

Agriculture is also a huge part of Brazil's booming growth story, accounting for 8% of the country's gross domestic product and employing a remarkable quarter of its labor force in more than 6 million agriculture enterprises. Brazil is the world's largest producer of sugarcane and coffee, and a net exporter of cocoa, soybeans, orange juice, tobacco, forest products, and fruits and nuts.

When you add it all together, Brazil has seen its exports explode in the past six years, up more than 120% after jumping to $234 billion in 2011 from $104 billion in 2005.

But that torrid growth also comes at a cost. Expectations for high rates of growth create volatility, which is exactly what the market has seen in the iShares MSCI Brazil Index (NYSE: EWZ), an exchange-traded fund (ETF) that holds 70 Brazilian stocks. In spite of positive economic growth, shares have been down 21% in the past two years after falling sharply in the spring of 2012.

Take a look below...

That's why my favorite way to invest in Brazil is with solid industry leaders that pay a dividend. This provides investors with access to the Brazilian growth story, while creating a stream of income to boost total return and stability. These are exactly the kind of stocks that Elliot Gue profiles in his High-Yield International newsletter. And the best part for U.S. investors is that many of the best Brazilian stocks also trade on a U.S. exchange.

I've come up with a list of six Brazil-based stocks that are industry leaders that pay a dividend of more than 3.5%.

Of the six stocks in the table above, two deserve the spotlight: Ambev (NYSE: ABV) because of its dominant market position and Telefonica Brasil S.A. (NYSE: VIV) because of its presence in the high-growth mobile market...

Ambev (NYSE: ABV)
Yield: 4%

Ambev produces and distributes beer, craft beer, carbonated soft drinks, malt and other noncarbonated products across the world. With a market cap of $146 billion, Ambev is one of the largest alcohol and beverage companies in the world. This strong global presence has lifted the company to a market-crushing 82% return in the past two years. Although Ambev's forward price-to-earnings (P/E) ratio of 25 is a premium to its peer average of 21, the company continues to shift into higher-margin products and focus on operational efficiencies to increase profitability. Analysts are looking for earnings of $1.82 per share in 2013 and a very solid 7.7% growth projection. And with a dividend yield of almost 3.7%, Ambev offers a unique combination of growth and stability to counter emerging-market volatility.

Telefonica Brasil S.A. (NYSE: VIV)
Yield: 4%

Telefonica Brasil is a leading telecom service provider in Brazil with a market cap of $27 billion. The company derives more than 50% of its revenue from its mobile services, providing service in all Brazilian states. Its fixed-line business has experienced slower growth in the past few years as mobile continues to grow in popularity, but the company has combatted that bearish trend by offering additional services that include video, broadband Internet and cable TV services. Analysts are looking for full-year earnings of $1.92 per share in 2013, which has shares trading with a forward P/E ratio of 13, a slight premium to its peer average of 11. The company also pays out a dividend of 95 cents a share, which yields 3.7%.

Risks to Consider: Even emerging-market stocks with leading industry positions and high dividend yields can suffer from bouts of high volatility during times of economic uncertainty.

Action to Take --> These six Brazilian stocks all have a dividend yield of more than 3.5%, providing investors with a stream of income to help counter emerging-market volatility. Ambev and Telefonica Brasil are benefitting from their dominant market positions, giving investors another layer of stability to compliment an outsized stream of income.

Michael Vodicka does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.