January 25, 2012

Schroder: Go for dividends

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.
Remarks: This article has vindicated my stock investment philosophy that investing in high dividend stocks is a relatively safer and rewarding investment option.
Source: TheStar

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