When investors think of adding Asian stocks to their portfolios, they do so mostly for the growth potential of the region. An exploding population coupled with an expanding middle class is driving up the prices of commodities, spurring infrastructure investment and creating the consumers of tomorrow. These are the hallmarks of the general thesis for investing in the region. The hope is to capitalize on that growth in a portfolio. However, Asia offers many opportunities for income investors as well.
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Income Plus Growth
The Asia Pacific region has evolved into a leading location for both growth-oriented and income-seeking investors. The region has expanded considerably in the area of dividends, making an income strategy on the continent possible for investors. For example, BRIC superstar China grew its dividend payments to $70 billion in 2009, up from just under $8 billion in 1998. Nearly 44% of all Chinese public companies now pay dividends. In 2007, the companies that make up the MSCI Asia Pacific Index, a broad measure of the region, paid out $244 billion in dividends, compared with the $253 billion paid out from the S&P 500 (NYSE:SPY) . Dividends have accounted for more than half the total return of the MSCI Asia Pacific Index since 1987.
In addition, dividend payers in the region are mispriced as investors sought only growth; these stocks represent a value proposition. Companies within the Asian-Pacific realm offer faster dividend growth than their United States twins, but also present initial higher yields. The distribution growth can be attributed to the high degree of government or family ownership. Dividends are a perfect way to extract wealth from an investment or company.
Several Approaches to Gain Exposure
For investors looking to undertake an Asian dividend strategy there are several ways to add them to a portfolio. Broad based sector ETFs do offer some compelling dividends and yields. The WisdomTree Pacific ex-Japan Total Dividend (NYSE:DND) pays 2.28% and the iShares MSCI Pacific ex-Japan (NYSE:EPP) yields 3.7%. However, both are heavily tilted towards Australian stocks. This may not be such a bad thing, due to the nation's role as top commodity producer for the region.
Investors can also hone in on individual country ETFs that pay above average yields. The iShares MSCI Singapore Index (NYSE:EWS) and iShares MSCI Taiwan Index (NYSE:EWT) both yield about 3%. But, as an overall way to gain higher distributions, individual stock-picking maybe best option for investors.
China Nepstar Drugstore (NYSE:NPD) operates a chain of 2,500 retail outlets throughout mainland China. As a purveyor of both traditional and modern medicine, the stock is direct play on the growing Chinese consumer. Comps rose by nearly 11% in the last quarter and the stock pays a nice 3.8% dividend yield.
Taiwan Semiconductor Manufacturing (NYSE:TSM) is the world's largest semiconductor manufacturer and foundry. As businesses return to IT spending and consumers clamor for the latest smart-phones and tablet computers, business at Taiwan Semi should continue to grow as sales came in at $2.94 billion, the most in the past eight quarters. The ADR yields about 3.4%.
An investment in Telkom Indonesia (NYSE:TLK) symbolizes a play on the "Next China". With its 230 million residents, the growing consumer story in Indonesia is just as important as it is in China. Telkom Indonesia is by far and away the most dominant telecommunications company in the Asian nation. Controlling virtually all the fixed line assets and about 45% of the fast growing wireless market, Telkom will certainly be a major force in shaping Indonesia's future. Shares of the telecom giant yield also yield 3.5%.
The Bottom Line
When investors think about Asia, they tend to be interested strictly in the region's growth prospects. However, they may be selling themselves short. The nations within its borders also offer plenty of dividend income to investors seeking yield. Adding a touch of Asian dividends, either through individual companies or through regional exchange traded funds, is easy. Any of the previously mentioned stocks are a great place to start a dividend search in the region. (Learn more about investing overseas in Re-evaluating Emerging Markets.)
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