Where should investors searching for yield look in global equities? In certain parts of Asia, “there’s a significant amount of cash flow being thrown off by a number of companies,” says Chris Ibach, global portfolio manager at Principal Global Equities in Des Moines, Iowa.
Ibach, whose firm is one of three managers of the Renaissance Global Equity Private Pool, noted various Japanese companies are seeing positive growth due to changes in corporate governance.
“Companies are now buying back shares, even retiring shares, and raising dividend yield using unused cash from the balance sheet [that has been] hoarded there for probably the last 10 to 15 years,” he said in a March 14 interview.
“They’re starting to see this because the companies are being rewarded for these higher dividend yields. So we believe Japan, over the next five to seven years, [has] significant opportunities to raise yields higher than what we see now.”
Ibach highlighted Japanese automakers Toyota and Honda, which are “not huge yielders for Japan, but we do believe the companies are very, very stable.” That’s because they’re making the transition to electric, hybrid vehicles, he said.
“They are global leaders, and we think as this transition starts to unfold, the value will be released,” he said. “Toyota and Honda have significant potential upside to raise dividends as well. So they offer a decent dividend yield over 3%, and can deliver very strong growth going forward. The stocks trade at about 1x book value, so we really like their position right now.”
Another company Ibach likes is Japanese industrial Nitto Denko. One of the products it makes is protective films for cellphones.
“They’re the global leader in supplying films for LCD panels, and they’re moving to OLED panels that go into your iPhone X and some of the higher-end Samsung models,” he said. “The stock has really sold off on this transition from LCD to OLED, and the stock offers a very attractive dividend.”
Over the last year, Nitto Denko’s stock hit a high of JPY8,988 in June 2018. It fell to JPY5,218 during December’s sell off. In April, it was back up to around JPY6,000.
Another reason he likes Nitto Denko: the company has a large cash component, which allows it to “spin off cash to shareholders at any point in time. So this is an area that we believe dividends could be raised significantly.”
Ibach also likes Hong Kong’s property sector overall because various companies offer decent yields and stable business models, and trade at a discount.
“There’s a number of different companies in the REIT sector in Hong Kong that offer growth to the […] economy in a stable manner, and deliver a very strong yield,” he said.
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