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In the ever-changing landscape of global markets, dividend investing in Asia has become an alluring choice for investors. Fueled by Asia’s thriving economies and a wide array of industries, the region’s dividend stocks present an enticing combination of stable income and the potential for capital growth.
Asia’s dividend stocks account for three-quarters of the region’s long-term equity returns from 1987 to 2022, as per data from FactSet, MSCI and Schroders. Additionally, as of December 2022, the MSCI AC Asia Pacific ex-Japan Index had a dividend payout ratio of 45% and a gross aggregate dividend yield of 3.4%, outperforming most other major global markets.
“…companies that pay high dividends are neither low-growth nor boring…they often only pay high dividends if they are confident that their future earnings are robust enough to sustain the payout,” writes King Fuei Lee, Co-Head of Asian Equity Alternative Investments at Schroders.
Furthermore, Lee emphasizes that in the face of corporate governance challenges in Asia, focusing on dividend investing provides investors with a safeguard against potential pitfalls. “This is because companies reduce the temptation to waste money on value-destroying investments when they return excess cash to shareholders,” he adds.
Attractive valuations, ageing population drive Asian dividend investing
In contrast to certain Western markets, dividend investing in Asia does not imply sacrificing growth. According to Abrdn, numerous Asian companies strike a balance by offering stable dividends while maintaining a healthy growth trajectory.
Additionally, the asset manager highlights that valuations in Asian markets currently remain reasonable. And despite earnings being at cyclical lows, Abrdn believes that there are promising signs of recovery ahead.
“There is still abundant choice of businesses that generate good profitability and cash flow and pay higher than the benchmark dividend. At the same time, their strong balance sheets should provide some defensiveness if the reopening trade proves bumpier than expected,” writes Yoojeong Oh, Investment Manager at Abrdn.
Along with this, investors, particularly older ones, find dividends attractive, driving the demand for dividend-paying stocks in an ageing world. As the number of retirees and soon-to-retire individuals increases, the demand for dividend payers in Asia is expected to grow, making them attractive long-term investments.
“Given how big a component of long-term equity returns dividends have historically been, and knowing how strong their demand from the ageing population will be, any investor who is looking for fast-growing companies with strong corporate governance in Asia will do well to pay heed to them,” informed Lee from Schroders.
Nevertheless, certain factors pose challenges for dividend investing in Asia. Matthews Asia predicts that fears of a global recession, geopolitical tensions, and an uneven recovery in China may impact earnings growth and overall sentiment for some companies in the region during 2023.
Despite these challenges, the asset manager remains optimistic about specific countries. “…countries like India and Indonesia continue to see consumer demand while the former can benefit from the relocation of supply chains…it is Japan that remains one of the brighter spots, supported by what may be a return in inflation and improving shareholder return policies that have attracted broader interest in equities,” it added.
How to invest in Asia’s dividend stocks?
Here are some funds available for investors interested in dividend investing in Asia.
Matthews Asia Dividend Fund (USD) Class I Shares
Established in 2010, this fund endeavours to attain its investment objective by allocating at least 65% of its total net assets to income-paying publicly traded common stocks, preferred stocks, convertible preferred stocks, and other equity-related instruments of companies situated in the Asia Pacific region, either directly or indirectly.
The fund has total assets under management of $113.98 mn.* The Matthews Asia Dividend Fund is benchmarked against the MSCI All Country Asia Pacific Index. It has an annual management fee of 0.75% and an expense ratio of 0.90% (USD). It has risen 2.85% year-to-date, and since its inception, the fund has given 4.27% returns.
The Matthews Asia Dividend Fund has a total of 60 holdings. The fund’s top five holdings* are Taiwan Semiconductor Manufacturing Company (5%), Tencent Holdings (2.5%), Japanese trading and investment company Itochu (2.4%), Samsung Electronics (2.4%) and Indian mortgage lender Housing Development Finance Corporation (2.3%).
Sector-wise*, the fund is largely invested in financials (18.8%), IT (17%), consumer discretionary (14%), communication services (11.2%) and industrials (10%). Country-wise, the fund has the largest holdings in Japan (31.3%), China/Hong Kong (25.6%), Australia (9.7%), Taiwan (8.2%) and India (7.5%).*
The lead managers of the Matthews Asia Dividend Fund are Robert J. Horrocks and Kenneth Lowe. Horrocks is the current CIO and Portfolio Manager at Matthews and has a career spanning nearly three decades. Lowe, a portfolio manager, has been at Matthews Asia since 2010.
Schroder ISF Asian Dividend Maximiser C Accumulation USD
Schroder ISF Asian Dividend Maximiser C Accumulation USD, launched in 2013, aims to generate a yearly income of 7%. This is pursued through a combination of call option overlay and an actively managed equity portfolio focused on the Asian region (excluding Japan). The fund’s strategy involves tracking the performance of two key indices, namely the MSCI AC Pacific ex Japan (Net TR) index and the MSCI AC Pacific ex Japan High Dividend Yield (Net TR) index.
As of October 31, 2022, the fund has an ongoing charge of 2.11%. It is managed by fund managers Richard Sennitt, Mike Hodgson, Scott Thomson, Ghokhulan Manickavasaga and Jeegar Jagani. Sennitt, Jagani and Thompson have been managing the fund since 2013, while Hodgson and Manickavasaga have been at the helm since 2016 and 2017, respectively. The fund had total assets under management of $231.87 mn.
In the last five years, the fund has given 10.7% returns. Along with that, the fund has risen 4.1% year-to-date*. Additionally, since its inception, the Schroders fund has generated 35.2% returns.
The fund has a total of 60 holdings, with the top five being: Taiwan Semiconductor Manufacturing Company (9.36%), Samsung Electronics (8.40%), BOC Hong Kong Holding (2.96%), Australian multinational mining company BHP Group (2.92%) and Oversea-Chinese Banking Corp (2.82%).*
Sector-wise*, over 50% of the fund are invested in financials (31.04%) and IT (26.26%). Real estate (11.63%), communication services (10.30%) and materials (7.82%) round up the top 5 holdings. While the Matthews Asia fund is mainly investing in Japan and China/Hong Kong (together over 50%), region-wise, Schroders is mainly invested in Australia (18.17%), Taiwan (17.92%), China (15.32%), Singapore (14.00%) and South Korea (13.33%).*
Abrdn Asian Income Fund
The Abrdn Asian Income Fund, introduced in 2005, operates as an investment trust. Investment Trusts are essentially ‘closed-ended’ as they maintain a fixed pool of capital. Investors acquire shares of the investment trust from the stock market as opposed to purchasing them directly from the fund manager.
Thie Abrdn fund is benchmarked against the MSCI AC Asia Pacific ex Japan Index and the MSCI AC Asia Pacific ex Japan High Dividend Yield Index. Its goal is to enhance dividend growth over time while investing in Asia Pacific securities, including those with an above-average yield.
The top five holdings of the fund are: Taiwan Semiconductor Manufacturing Company (7.4%%), Samsung Electronics (5.3%), BHP (3.5%), DBS Bank (3.4%), and Oversea-Chinese Banking (3.3%). The highest allocation is for Taiwan (21.2%), Singapore (20.1%), Australia (16.8%), China (10.4%), and South Korea (7.5%).*
Sector-wise, the top 5 allocations are in technology (27.97%), financial services (24.48%), real estate (13.85%), communications equipment (11.07%), and basic materials (10.69%).**
* as of June 30, 2023
** as of May 31, 2023
