Dividend Forecasting - LATAM 2025 Outlook

Based on our bottom-up forecasts, we expect Latin American dividends to decrease by 7.6% in 2025. Brazil, Mexico and Chile are set to remain the largest dividend-paying nations in the region, collectively projected to account for 84% of total dividends in Latin America in 2025.

The financial sector in Latin America is projected to maintain its status as the highest dividend-paying sector, accounting for 28.4% of Latin American dividends. While the overall outlook for Latin American banks appears relatively balanced, there are concerns about a moderate deterioration in asset quality and liquidity.

Brazil's economy shows resilience but is growing slower than its emerging market peers, with a strong external position marked by a small current-account deficit and low external debt. The country faces fiscal challenges, including persistent primary deficits, a significant interest burden and high fiscal debt levels. Deep domestic capital and debt markets help mitigate funding risks, as most of government debt is issued in local currency. Brazilian banks have significant exposure to government debt, which may limit credit availability to other sectors. The top three dividend-paying banks rely heavily on wholesale funding, introducing volatility to their asset bases and potentially impacting profitability and shareholder distributions.

In contrast, the Mexican financial sector exhibits a low-risk profile, underpinned by prudent lending, strong provisioning and solid capital positions, fostering low credit risk and supporting economic growth through 2025, particularly for small and medium-sized enterprises. Mexico's four largest banks dominate the credit and dividend landscape. The financial system's strong capitalization and liquidity, along with conservative lending practices, provide resilience against economic challenges, despite uncertainties arising from US policy changes (tariffs) that may affect investor confidence. Banks are well positioned to navigate economic headwinds, supported by a robust funding structure from diversified deposits and a growing domestic debt capital market. We expect Grupo Financiero Banorte SAB de CV, the largest player, to weigh half of Mexican banks' dividends.

The dividend outlook for the largest non-financial Latin American dividend payers is more sensitive to company-level events than to macroeconomic trends. Nonetheless, changes in US foreign policy might have short-term and midterm effects on some of these companies. 2025's protectionism wave will probably take a toll on Mexico's economic activity and harm the midterm economic growth outlook, potentially affecting Wal-Mart de México SAB de CV's (WALMEX) outlook. Higher volatility is expected for commodity prices (Vale SA and Petróleo Brasileiro SA [Petrobras]), with the final outcome being uncertain. While the state-controlled Petrobras — Latin America's largest dividend payer — might be impacted by the latter, given its key role in Brazil's energy sector, the company may benefit from government support during periods of financial stress.