A dividend-paying strategy in Asia is more compelling now than ever, according to Christina Woon, portfolio manager at Eastspring Singapore.
A lower rate regime makes dividend-paying stocks increasingly attractive as the traditional avenues for yield fall, while companies can borrow at lower costs, potentially increasing their profitability and ability to maintain or increase dividend payments, she argued in a recent paper.
In fact, during the past two decades, high dividend yielding stocks in Asia outperformed the broader market in two out of the three Federal Reserve rate cutting cycles.
In addition, the income stream from dividend paying stocks can help cushion market volatility. Historically, dividend-paying stocks tend to show lower volatility compared with non-dividend-paying stocks as companies that pay regular dividends are deemed to be more stable and hence viewed more favourably by investors, she said.
Asia lends itself well to dividend investing because the region has a high proportion of companies that pays dividends. Compared with the rest of the world, Asia Pacific ex Japan has the highest number of companies (more than 400) with dividend yields above 3%, reflecting a strong management culture that focuses on shareholder returns. Dividends also account for a substantial part (more than 60%) of the total returns from Asian equities.
“Asia also debunks the myth that dividends are the remit of low-growth stocks,” said Woon. The technology sector is the second largest sector within the MSCI Asia Pacific ex Japan High Dividend Index, which implies that dividend stock investors in Asia can benefit from both income and potential capital growth.
Meanwhile, dividends are set to rise in the region as governments in as Japan, South Korea, China and India push for improved governance among listed companies and an increased focus on shareholder returns.
For example, last year, South Korea’s Financial Services Commission outlined a framework for the Value-Up Programme, which includes guidelines to incentivise better shareholder return policies. In China, the China Securities Regulatory Commission has issued a “cash dividend guidance for publicly listed companies,” urging clarity in dividend policies and stabilization of investor expectations.
Many high dividend paying stocks are mature companies that have stable earnings and generate significant cash flows, typically a hallmark of value stocks.
“However, a focus on bottom-up stock picking and identifying stocks from early-stage dividend payers to late-stage dividend anchors, is likely to result in a style agnostic portfolio,” said Woon.
