Brazil makes utility firms interesting

SAO PAULO, RIO GRANDE DO SUL, BRAZIL - Utility companies are great income-investing stocks. They're relatively safe while typically issuing solid dividends.

One problem some investors may have, though, is that the upside potential for capital appreciation is rather limited. But when it's a Brazilian utility in question, things get a bit more interesting.

CPFL Energia CPL distributes electricity to 6.4 million customers in about 570 communities, mostly concentrated in the Brazilian states of Sao Paulo and Rio Grande do Sul.

The company, whose holdings include CPFL Paulista, CPFL Piratininga and Rio Grande Energia, owns hydroelectric power plants as well. All told, the company had 13 of the growing Brazilian market in 2009.

CPFL provides the basic necessity of energy to a country that is one of the fastest growing in the world. Both the business environment and the standard of living are shooting higher. That translates to greater energy demand.

Brazil and Latin America were not hit as hard as the rest of the world when the market collapsed, to the benefit of their rebound.

CPFL Energia is starting to show some banner earnings growth. Last-quarter profit rose 82, up from 65 in the previous quarter. That ended five quarters of declining earnings.

Sales too are getting better. After four periods of seeing revenue growth slow, CPFL has increased sales for three straight quarters. Last period they ticked up 51.

The company's fundamentals are somewhat protected as energy prices change.

"Energy purchase costs are a full pass-through to final customers and have no impact on long-run margins of distribution utilities, as per the regulatory framework," JPMorgan analyst Anderson Frey wrote in a May note.

CPFL's current dividend yield is about 7.