Lee King Fuei manages the Schroders’ Asian Equity Yield fund and focuses on dividend investing. Here are some of his insights gain from researching on dividend investing in the latest issue of The Edge:
- When he realize that his cash rich companies paying out good dividends are underperforming, he carried out a research to see whether there is a paradigm shift so that Asian dividend investing doesn’t work any more. What he found out is that this strategy that focus on good quality companies doesn’t work that well during bubble built up. This may give a good indication towards a market top in the future.
- Further example during the Asian Financial Crisis in late 1990s, high-dividend stocks underperformed in the months preceded.
- This was the case before the dot com bust in 2000 as well.
- In the aftermath of a crisis, high-dividend stocks tend to outperform for several years to which he attributes strongly to behavioral finance.
- He believes currently the fund is heading towards another post-crisis outperformance.
- Here is why he thinks investors should focus on dividends:
- High Dividend Stocks in Asia are also relatively cheap now
- Asia will grow more than US or Europe
- Asian stocks offer the highest dividend yields other than Europe, which are under pressured
- Currently an unusual case of high dividend yields but low opportunity costs due to importing low interest rates from US. He cites this is a once in a life time opportunity.
- As corporate governance standards in Asia are generally weak, dividends are strong indicator of the underlying cash-generating strength of the company’s business.
- King Fuei in his research identified that there is a positive correlation between dividend payouts and subsequent earnings growth.
- When the company pays a strong dividend, it strongly signals that they know the cash flow subsequently can sustain it.
- King Fuei differentiates dividend stocks into two category
- Dividend Cows - Large companies, large market share, steady cash flows. Examples DiGi.com, Telstra Corp, Taiwan Mobile and Fortune REIT
- Perform best during down markets
- Safe Haven
- Dividend Growers – A track record for paying dividends yet at the same time see growth in earnings. Dividend per share will grow. Examples Jardine Strategic and Jardine Matheson.
- He likes stocks that deal with Asian consumption and properties. This is because as people get richer one of the things they will consume more is properties. He likes Swire Pacific and UOL Group.
- He says that you need both Dividend Growers and Dividend Cows. The two complement each other to tide you through bull and bear markets.
That is certainly a good article I feel. I have a problem categorizing the stocks in my stock portfolio tracker, I really like his terms, perhaps I shall give my dividend stocks with different characteristics the same kind of categorization.
What do you guys think? How many dividend growers do you have and how many dividend cows do you have?
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