China and Hong Kong public companies are on track for the highest distribution cover ratio among major markets in 2025, according to a Capital Group Global Equity study.
Capital Group expects profits from Chinese and Hong Kong companies are on track to reach $769bn in 2025 and forecasts a distribution cover ratio of 2.1.
The distribution cover ratio measures how easily a company pays its distributions (either from dividends or buybacks) from its earnings or cash flow.
“Cover levels remain very comfortable at 2.02x earnings in 2024 and likely similar in 2025 – well above the global average,” the study said. “Relative to cash flow, cover levels are also among the highest of any major market.”
Although the cover ratio has come down from over 3x in the years leading up to the pandemic, the study said there is “still significant scope for higher distributions, even in the absence of profit growth”.
In 2024, China and Hong Kong dividends and share buybacks totalled $355bn, with buybacks accounting for over a quarter (27%) of the total.
Buybacks almost tripled in 2024 after intervention from the People’s Bank of China (PBOC) to create a lending facility for cheap loans to companies, enabling them to buy back their own stock.
In 2025, just ten companies are projected to have delivered two-thirds of China’s profit growth, according to the study.
Andy Budden, equity investment director at Capital Group said: “Corporate balance sheets are stronger than they were pre-pandemic, and the discipline of capital return has spread beyond the US.”
“Markets such as Japan and China have significant headroom to increase shareholder distributions, while in those with tighter cover, like the US, earnings growth is key to sustainably higher payouts.”
The study expects 2025 total distribution cover from Japan’s listed companies to be 1.4, and for US companies to be 1.2.
