Dividend-paying stocks in Asia should benefit from the expected economic recovery, driven by the global vaccine rollout and a low-rate environment, according to Frank Tsui, senior fund manager and head of ESG investment at Value Partners.
Dividends in Asia-Pacific (ex-Japan) fell 11.9% last year on an underlying basis, which is roughly in line with the global average, according to Janus Henderson’s global dividend index report. During the second half last year, around 9% of the companies cancelled their dividends, while 35% made cuts, it added.
“Not only would business operations return to normalcy, it is expected that corporate dividends would normalise by payout resumption,” Tsui said in a research note.
Tsui expects corporate earnings to grow by 25% this year, which should increase equity dividends.
The low-rate environment expected to last through 2021 will also attract flows to quality dividend-paying assets, Tsui added. With the Federal Reserve fund rates poised to stand at a 10-year low level, the opportunity cost of investing in higher-dividend stocks is low and Asian high dividend stocks look attractive.
Asia has long been a great place to hunt for equity dividends, Tsui argued. Dividends account for 40% of the MSCI AC Asia (ex-Japan) Index’s total return in the past 10 years. In China, dividend returns make up around 36% of the MSCI China Index’s total return.
While there is growing interest in China’s equity dividends, Tsui cautions investors to be selective.
“We do not place our convictions solely on the percentage yield,” he said.
For example, Value Partners remains underweight in Chinese banks despite a 6%-7% dividend yield and a low price-to-book ratio. This is because mainland banks run under state control, which could put constraints on asset quality management and free cash flow, he said.
Value Partners manages an Asia dividend strategy, the Value Partners High-Dividend Stocks Fund, which has a portfolio yield of 4%, according to its fund factsheet. The fund was launched in 2002 and has assets of around $1.9bn, according to data from FE Fundinfo.
The Value Partners High-Dividend Stocks Fund versus its benchmark index
