Investors should focus on high-dividend stocks as a strategy, especially in low earnings growth markets like Asean, according to Nomura Holdings Inc.
Such a strategy would make a comeback over the next few months, the brokerage said, as bond yields have started to decline due to increasing concerns about a U.S. recession. Earlier, due to high bond yields and interest rates, there was reduced investment appeal for high dividend stocks, it said.
"We think dividends as a strategy should outperform and be one area for investors," the note said.
The brokerage has identified companies with sustained high ‘actual' delivered dividend returns over the past few years and has termed them 'Dividend Kings'. These are stocks that have delivered more than 3.5% compound annual growth rate dividend returns since 2016 and have also outperformed the local benchmarks, Nomura said.
"We would advise dividend investors to focus on ‘Dividend Kings' of Asia and those whose 2023E consensus dividend yield is more than 3.5%", the note said.
Asia Has Many 'Dividend Kings'
The brokerage found 407 names in Asia ex-Japan, or AeJ, that met their criteria for ‘Dividend Kings'. This is more than the combined number of such companies found in the U.S. and Europe, the note said.
Nomura said that dividends seem to be a good way to invest in low earnings growth markets like ASEAN, and that many of these high-dividend stocks have also outperformed the local benchmark indices in terms of total return.
In Malaysia, 81% of the high-dividend companies managed to outperform the local index on a total return basis, the brokerage said. This number was 85% in the Philippines, 78% in Indonesia, and 71% in Singapore, it said.
The brokerage said that, overall at the AeJ level, 55% of high dividend stocks managed to outperform local indices, compared to only 24% in the case of the U.S., a market that is home to a number of growth-oriented stocks, and roughly the same number in Europe (54%).
Dividend is an opportunity for ASEAN investors, and this market is also home to a number of 'dividend kings' with Singapore, Malaysia, and Thailand having a good proportion of such stocks, Nomura said.
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