Schroder: Go for dividends

Firm says they account for 66% of long-term equity returns in Asia
PETALING JAYA: A convergence of global and domestic influences makes 2012 an opportune time to invest for dividends in Asia.
Schroder Investment Management Ltd
said its research showed that Asia, besides boasting the strongest
economic fundamentals in the world currently, also had one of the
highest dividend yields globally. It was second only to Europe, where
the unfolding debt crisis continues to raise questions about dividend
sustainability.
“Despite the market's obsession with share price
appreciation, historically almost two-thirds of long-term equity returns
in Asia have come from dividends,” Lee King Fuei, a Singapore-based
fund manager for Asian equities at Schroder, argued in his latest report
on the outlook for Asian equities for 2012.
“Unlike share price
appreciation which is affected by a myriad of factors including
non-fundamental influences such as sentiment and momentum dividend
return represents actual cash paid out by companies to their
shareholders.
“In addition, because dividends can only be paid
out of earnings, which are in turn driven by the economy, dividend
return tends to have a stronger correlation with existing economic
conditions than share price appreciation,” Lee explained.
Schroder's
research showed that high dividend-yielding stocks in Asia had
generally outperformed both the market and low-yielding stocks in the
region over the last 20 years.
While studies suggested that
dividend-investing strategies had also worked in the United States and
Europe, Schroder argued that the benefits of the strategies seemed to
manifest themselves strongest in Asia, delivering returns several times
that of their global, US, Japanese and European counterparts over the
last decade.
“Until monetary policies in Asia are altered so that
the low interest rates in the United States are not imported into the
region through its exchange rates targeting, the huge divergence between
Asian dividend yields and domestic interest rates represents a unique
opportunity for investors to enter the dividend-investing strategy at
little opportunity cost.
“Investors now get to receive regular
dividend payments from Asian corporates that far outstrip the interest
rate payments that they would otherwise have received on their bank
deposits, while continuing to participate in potential future share
price appreciation a clear win-win situation,” he added.
With
this longer-term dividend trend continuing to play out and with ample
dividend opportunities existing in Asia, Schroder pointed out that the
dividend-investing strategy would have many more good years ahead for
investors looking at the region.