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By Bloomberg

If investors need another reason to avoid Brazil’s equity market, here it is: More companies in Latin America’s largest economy are forecast to cut dividends than in any other major developing nation.

Vale SA, the world’s largest iron-ore producer, and century-old retailer Cia. Hering are among the 17 companies in the Ibovespa equity gauge that will trim payouts this year, according to forecasts from analysts surveyed by Bloomberg. That’s about a fourth of the index’s stocks, a higher ratio than in benchmarks for Russia, India and China.

Earnings for companies in the Ibovespa have tumbled by an average 25 percent in the first quarter as Latin America’s largest economy heads toward the worst recession since 1990. Concern that the slowdown will further erode profits has sent the gauge to the biggest slump among the world’s major benchmarks since it reached this year’s high in May.

“Companies that are cutting payouts want to save cash in order to go through a more difficult economic environment,” Rodrigo Furtado, who helps manage two dividend funds that have 160 million reais ($51.9 million) under management at XP Investimentos, said by phone from Rio de Janeiro.

President Dilma Rousseff’s administration has been increasing taxes and reducing expenses in a bid to shore up the budget and avoid the loss of Brazil’s investment-grade credit rating. While the measures are intended to restore investor confidence, they are having a negative impact on the economy, with both consumers and companies cutting spending.

Hering, Vale

Clothing retailer Hering will reduce its dividend by 20 percent this year, according to the analysts surveyed by Bloomberg. The company surprised investors May 7 by announcing a 36 percent plunge in first-quarter profit. Real-estate developer BR Properties SA, which gets all of its revenue from Brazil, is forecast to trim its payout by 77 percent.

After showering stock investors with some of the most generous dividends among major miners, Vale said in January it will cut its payout by 52 percent in 2015. Analysts surveyed by Bloomberg predict an even bigger reduction of 62 percent as a slowdown in Chinese demand weighs on iron-ore prices.

The proposed dividend of $2 billion for this year is consistent with the current scenario of falling commodity prices, according to Vale’s statement. The company also said it’s cutting costs and investments to boost cash.

Vale’s press office said it didn’t want to comment further on its dividend policy. The spokesmen for both Hering and BR Properties declined to comment.

‘Very Attractive’

While some Brazilian companies are forecast to trim dividends this year, their returns are still very high, according to Joao Pedro Brugger, an economist at Leme Investimentos.

“It is true that dividends have fallen, but many stocks in Brazil are very attractive from a yield standpoint,” Brugger, whose firm manages 500 million reais, said by phone from Florianopolis, Santa Catarina.

Companies in the Ibovespa have an average 12-month gross dividend yield of 3.8 percent, compared with 2.6 percent for the MSCI Emerging Markets Index, according to data compiled by Bloomberg. Ibovespa futures due in August rose 0.6 percent at 9:06 a.m. in Sao Paulo.

Yet with data pointing to a further slowdown of Brazil’s economy, dividends probably won’t recover any time soon, said Mirae Asset Wealth Management’s director Pablo Spyer.

The economy shrank in April for the sixth time in the past seven months as the central bank continued to raise interest rates in a bid to tame above-target inflation. That put Brazil on pace to contract more than every Latin American nation except Venezuela this year.

“The economic slowdown means corporate prospects will be very discouraging for several quarters ahead,” Spyer, whose firm oversees 4.5 billion reais, said by phone from Sao Paulo.