Payouts from Chinese listed companies exceeded 1 Trillion Yuan for the first time in 2017, as companies paid out around a third of their profits. It is symptomatic of a dividend revolution in Asia, which has seen flagship companies such as Samsung reprioritising how they reward investors.
Asian companies now pay higher dividends than their global peers (1.) – an average of 2.6% for companies in the MSCI Asia ex Japan index versus 2.4% for the MSCI World index. Yet investors pay a good deal less for that yield. Asian companies trade on an average price to earnings ratio of 13x versus 15.5x for global companies. The pace of growth is also compelling: overall dividends jumped 18.8% in 2017 (2.)
However, we believe there are wider reasons to look at Asian dividends. In Asia, where governance is important and often separates the strongest and weakest companies, a commitment to paying dividends can often direct investors to those companies being managed responsibly and sustainably for the long-term. It tends to show that the management team has a commitment to adding value for external shareholders and sufficient cash flow to pay dividends.
Bangkok Insurance (BKI) is a good example in the New Thai investment trust. We’ve held it for over 10 years and alongside long term growth in the share price, we have seen meaningful growth in the dividends over that time. It remains a beneficiary of increasing financial inclusion in Thailand and beyond (3).
Dividend payouts mean that company CEOs are being careful with their capital. Rather than spending it on vanity projects or value-destroying acquisitions they return it to shareholders. We believe this inherent defensiveness is an advantage. Asian markets can be volatile and may be buffeted by the sentiment of international investors. A regular income means investors are ‘paid to wait’, allowing them to ride out tougher periods.
In developed markets, there is often a price paid for income. If a company has a high dividend, it may also be stodgy and short on growth prospects. Too often, it may be in thrall to large institutional shareholders with liabilities to meet, who will vote with their feet if the dividend is cut. Within Asia, there isn’t this distinction. Both small and larger Asian companies pay their shareholders dividends.
At the same time, companies can grow and pay a dividend. As such, investors don’t need to choose between dividends and growth.
The commitment to dividend payouts varies considerably from country to country. Thailand offers a rich source of dividends and we believe the 2% yield on the New Thai trust remains compatible with long-term growth. We recently re-jigged the way costs are charged in the portfolio in order to increase the amount of net earnings available to pay dividends to our shareholders. The trust is introducing an interim dividend in the third quarter, addressing investors’ appetite for increased yield from Asian companies. The underlying portfolio has an estimated dividend yield of 3.3%, reflecting the high-quality nature of its holdings.
Risk factors you should consider prior to investing:
The value of investments and the income from them can fall and investors may get back less than the amount invested. Past performance is not a guide to future results.
Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
Movements in exchange rates will impact on both the level of income received and the capital value of your investment. There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
Other important information:
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Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.
Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1YG. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
Find out more at: www.newthai-trust.co.uk