Asia is rapidly becoming a dividend powerhouse. Dividends in the region have soared 139% in the past decade as pre-tax profits climbed 80%. That compares to growth of 109% and 2% respectively in the rest of the world, according to the Janus Henderson Investors Asia Pacific Dividend Index 2021.
Speaking at a recent Sub35 webinar, Sat Duhra, co-manager of the Henderson Far East Income investment trust, said: ‘One thing that’s very unique about Asia is that there’s an opportunity for income and capital growth. That’s something you don’t see in many other regions.’
Asian companies held up remarkably well during the Covid-19 pandemic. Pre-tax profits fell by 80% in the UK and almost 25% globally in 2020. In Asia, the figure was closer to 6%, broadly in line with the decline in dividends.
‘There was a real resilience in our region,’ said Duhra. ‘It even surprised our lofty expectations. There has been underlying resilience and that’s because Asian companies are not very indebted. Cashflow is very strong and there is the opportunity to keep increasing what are currently very low pay-out ratios.’
The trust has the highest yield in the Asia Pacific Income peer group at an impressive 7.8%. During trickier times, its revenue reserves can be used to bolster dividends paid to shareholders.
The board has progressively increased the dividend from 8.25p in 2007 to 23.4p in the trust’s latest financial year, which ran to 31 August. Following payment of that, reserves still stand at almost half a year’s dividends.
Growth rather than income is the focus for Baillie Gifford’s Japanese equity team. ‘The purpose of the Shin Nippon investment trust, which was launched back in 1985, is to capture the inherent asymmetry of Japanese small cap returns. And it does that by investing in what we think are the most promising immature and emerging companies that exist there,’ said investment specialist Thomas Patchett.
‘This is not a play on Japan per se. It is instead a collection of currently 78 companies that we think offer the most promising long-term opportunity that just so happen to be based there.’
Baillie Gifford boasts the largest Japanese equities team outside Japan. The Edinburgh-based team favours disruptive businesses run by dynamic entrepreneurs, whether domestic champions or global leaders.
The largest theme that has emerged from its stock-picking is digital transformation. ‘This is a huge opportunity in Japan,’ said Patchett. ‘There’s a lot of low-hanging fruit here because Japan is massively behind the curve when it comes to digital disruption.
‘Covid acted as quite an important catalyst in changing people’s opinions and forcing a high degree of capitulation towards more efficient online means. There are structural issues with regards to a shrinking and ageing population and workforce which should help that trend to continue.’
Other trends that the trust has exposure to include innovative healthcare, frictionless finance and climate champions.
To hear more about the potential of Asian companies to deliver income and capital growth to shareholders, and some of the companies the investment trusts have in their portfolios, watch the webinar.