(Runtime: 3 min, 54 sec; size: 3.13 MB)

Related article

Text transcript

Chris Ibach, Global Portfolio Manager at Principal Global Equities.

With regards to finding yield around the globe, there are a lot of opportunities. Rates have really declined a lot over the last 10 years, and up until about 2013, we started to see people start to raise interest rates, central banks starting to raise interest rates. That caused a lot of the valuation, multiples of some of these high-yielding companies, to come down after a very strong run from the financial crisis. I think at this point, we see a lot better opportunity investing in yield in some of the areas of Asia that still are growing, but there’s high demand and there’s a significant amount of cash flow being thrown off by a number of these companies.

I would highlight, in Japan, we see Toyota and Honda. These are, relatively, not huge yielders for Japan, but we do believe the companies are very, very stable. They’re making the transition to electric; they’re doing some things there that it’s going to benefit them in this transition. They’ll likely be a hybrid kind of switchover over the next number of years. But 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, in our opinion, growth going forward. The stocks trade at about 1x book value. So we really like their position right now. They are global leaders, and we just think as this transition starts to unfold that the value will be released, and you should be able to get the yield component as well.

I would also highlight Nitto Denko there, which is an industrial. They make films for cell phones. What they do is that they’re basically the global leader in supplying these films for LCD panels, and they’re moving to OLED types of panels that go into your iPhone 10 and some of the higher-end Samsung models, and they’re just a global leader. The stock has really sold off on this transition from LCD to OLED, and the stock offers, again, a very attractive dividend. They have a very large cash component; they can spin off cash to shareholders at any point in time. They have a large cash balance on their balance sheet. So this is an area, too, that we believe dividends could be raised significantly.

I would also highlight some other companies in Japan, some other areas in Japan in general, because of some of the corporate governance things that we’ve seen changed over there where companies are now buying back shares, even retiring shares in their companies and raising dividend yields using unused cash from the balance sheet that’s been hoarded there for probably the last 10 to 15 years. They’re starting to see this because the companies are being rewarded for these higher dividend yields. So we believe that Japan has, over the next five to seven years, significant opportunity to raise yields higher than what we see now.

With regards to other parts of Asia, I would highlight the Hong Kong property sector. These companies, Cheung Kong and that, offer decent yields and pretty stable business models, too, and trade at significant discounts to what you see for fair value. There’s a number of different companies there in the REIT sector in Hong Kong that offer growth to the Chinese economy, growth to the Hong Kong economy, in a stable manner and deliver a very strong yield.

Funds:
Renaissance Private Investment Program
Renaissance Global Equity Private Pool
Related Article