Asia a strong dividend play

Asia could provide a strong alternative for investors looking for stable dividend yield, according to boutique fund manager Maple-Brown Abbott.

Geoff Bazzan, Maple-Brown Abbott (MBA) head of Asia Pacific equities, said Asian companies had the strongest balance sheets in the world.

“Countless stocks are yielding 5% on a cash dividend basis and we think that is sustainable,” Bazzan said.

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“Some of those are cyclical companies and many of them are financials, including the Chinese banks which are probably yielding north of 7%.”

However, Bazzan said financials weren’t a “sleep-at-night” dividend play because when crisis came, the first thing that would get cut was dividends, but Asia still provided strong opportunity.

“If you look at Asia holistically, its unique from the opportunities you get from that perspective,” Bazzan said.

“There were historically lower pay-out ratios, there’s a bunch of reasons for that, but there is clear evidence hat’s changing and there is rising free cashflow.

“Strong dividends, strong balance sheets, rising free cashflow – so that money has to go somewhere and you’ve seen increasingly companies across the region be more generous in distributing those profits.”

Bazzan said banks were typically leveraged eight to 12 times so the buffer that exists gets eroded quickly when earnings were under pressure.

“Asia is probably less exposed to that because most banking markets in Asia to be better capitalised,” Bazzan said.

“The Singaporean banks are very conservative, so their dividends were largely sustained through last year.”

Bazzan managed the Asian Investment Trust and the Asia Pacific Trust, which last had an annual distribution of 8% and 10.9%, respectively, at 30 June, 2020.

Annual distribution MBA Asia funds over the last five years

 

Asian Investment Trust

Asia Pacific Trust

30 June 2020

8%

10.9%

30 June 2019

12.3%

13.9%

30 June 2018

14.6%

11.3%

30 June 2017

15.3%

7.8%

30 June 2016

11.3%

8.9

%

Source: Maple-Brown Abbott. Distribution includes income and capital gains.

According to FE Analytics, over the year to 30 April, 2021, the Asian Investment Trust returned 29.17% while the Asia Pacific Trust returned 27.39%.

The Asia Pacific ex Japan sector had an average return of 36.38% during that time.

Performance of MBA Asia funds over 12 months to 30 April 2021




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