12th December 2014
For investors searching for income, the UK has been the go-to region but Mike Kerley of Henderson Global Investors believes Asia is playing catch-up in the dividend stakes.
UK dividend culture is strong but Kerley points to Asia as a new region for income. He provides the example of Korea, which recently announced plans to penalise companies for hoarding excess cash on their balance sheets.
There are also reforms in China’s state-owned enterprises to place greater emphasis on shareholder returns, a route Japan is also taking.
However, investors should be aware that the income profile in Asia is different to the UK.
‘Some of the higher-paying industries in Asia are traditionally very low-paying in the west, for example technology and industrials,’ said Kerley.
‘In the technology sector we hold Casetek, a Taiwianese manufacturer of high-end casing for technology mobile products such as smartphones and table computers. Firmly integrated into our daily lives and usually carried from place to place, demand grows to protect and prolong the lifetime of these expensive gadgets…From an income perspective, the company yields an attractive 4.6%.’
Within industrials, state-owned enterprise Shanghai Industrial Holdings is a pick for Kerley.
‘It is a large conglomerate with interests in provincial infrastructure such as toll roads, as well as healthcare and consumer products,’ he said. ‘Our expectation is an injection of assets including property and water from its parent company which should have a positive effect on cash-flow. As it stands it yields around 3.7%.’
Kerley said diversifying income away from UK shares is a good idea as ‘the UK’s dividends are far too concentrated among the top companies’.
‘Diversity in a balanced income portfolio has obvious benefits,’ he said. ‘The Deepwater Horizon oil spill in the Gulf of Mexico highlights the point: when BP suspended its dividends during this time the impact was certainly felt by investors.
‘The collapse of RBS in the wake of the global financial crisis had similar effect. Reducing such stock specific risks, especially where dividends are concentrated in a particular market, may serve to improve the reliability of your income. We think Asia is a growing source of such diversity.’