Partner Insight: Asia dividend growth has almost doubled in five years, offering uncorrelated sources of income when compared to Western figures. Yet many investors remain wary of the sector. Matthews Asia Portfolio Manager Yu Zhang provides his view on the outlook for the sector
Asia's dividend landscape has evolved significantly over the past five years. Today it boasts a dividend pool of well over $240bn, encroaching on Europe and the U.S. at $317bn and $399bn respectively*. And while dividend yields in Asia have grown to be on a par with Europe and the U.S., dividend growth in Asia is almost double what it is in the West, offering a much faster growth rate of underlying dividends without changing dividend payout ratios.
For Matthews Asia Portfolio Manager Yu Zhang, it is this growth that is driving the Matthews Asia ex Japan Dividend Fund's investment philosophy. The fund, which was launched in November 2016 and recently celebrated its three year anniversary, aims to invest primarily in companies that exhibit attractive dividend yields across the Asia ex Japan region. Importantly, he looks for those stocks which have the potential to grow those dividends over the long term.
"Many constituents of the MSCI Asia ex Japan Index offer healthy yields alongside growth, and over 100 companies in the index offer yields of more than 4% a year alongside future earnings per share above 10%," notes Zhang. "We believe this is partly due to the ownership structure of many companies in Asia, which in contrast to Western companies consists mainly of family owners."
Often the original founder/family is still the majority shareholder of companies in Asia and dividends are a significant source of income and cash flow. In comparison, the dividend culture in the U.S. is often more nuanced, Zhang explains.
It is an ability to home in on such companies that Zhang believes can offer investors an uncorrelated source of income that is difficult to replicate in other regions. In addition, Zhang uses a company's dividend process to analyse the underlying health of a company as well as its long-term prospects.
"Dividends in Asia have always been a large part of a company's total return," he explains. "But dividends also play an important role in helping to define a company's underlying business model, the strength of its earnings and can provide insight into its corporate governance practices."
Click here to read the full article on the evolution of Asia's income universe and more from Matthews Asia on the region's dividend payout policies
