Asia's Dragon-Sized Dividends

By Aaron Levitt | August 10, 2011 AAA

When investors look towards Asia, they generally do so from a growth point of view. After all, the region's exploding populations, expanding middle classes and conservative government accounting is helping spur new infrastructure investment and creating the consumers of tomorrow. Overall, the continents long term promise is great and investors that capitalize on this growth will be rewarded. However, given the market's recent uncertainty and global sell-off, many investors are worried about that growth in the short term. Luckily, Asia is more than a one-trick pony.

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Asian Dividend Stocks
Despite being viewed strictly as a capital gains engine for portfolios, Asia has historically been an income seekers dream. Asian equities have traditionally yielded between 75 to 100 basis points more than U.S. stocks. Currently, stocks of Asian companies outside of Japan have an average dividend yield of over 3%. What's more impressive is the dividend growth rates for these stocks. Data analyzed by Bloomberg found that Asian dividend growth outpaced both the United States and Europe on an annual basis. Dividends within the broad MSCI Asia Pacific Index rose at an average annual rate of 16% from 2002 to 2009. This compares with only a 6% annual dividend growth rate for the S&P 500. Dividends have accounted for more than half the total return of the MSCI Asia Pacific Index since 1987.

Value in Dividends
Dividend payers in the region are mispriced as investors have sought growth only, so these stocks represent an excellent value proposition. Since the currency crisis in the late 1990s, many Asian firms have clamped down on debt and have extremely healthy balance sheets. Also, Asian equities typically have a high degree of government or family ownership. These dividends are a perfect way to extract wealth from an investment or company. This propensity for higher dividend growth combined with higher GDP growth rates makes Asian equities a great buy during the turmoil.

Investors may have another reason to smile. While the U.S. dollar has been rising lately, the expected long-term decline in the greenback makes Asian dividends that much sweeter. As these dividends are paid in Bhatt, Yuan, Ringgits and Rupees, and then translated into dollars, investors can receive a higher payout as the dollar falls. These payments can ultimately help cushion the extra volatile nature of Asian markets.

Adding A Dose Asian Dividend Power
With the long term trends in Asia's favor, investors may want to consider adding an Asian dividend strategy to their portfolios. The WisdomTree Asia Pacific ex-Japan (Nasdaq:AXJL) follows a basket of 250 high yielding equities from across 12 different Asian countries. The dividend focused fund currently has a distribution yield of 5.74% and has returned just over 11% annually since its inception in 2006. In addition, the iShares MSCI Pacific ex-Japan (NYSE:EPP) as well as the ING Asia Pacific High Dividend (NYSE:IAE) make adding a broad swath of Asian dividend payers to a portfolio easy.

Although there has been some recent problems with Chinese reverse merger firms, these firms never paid dividends. While you can fake profits, handing out cold hard cash to investors is another matter. With that said, China remains an interesting place to look for dividends. Both China Life (NYSE: LFC) and China Mobile (NYSE:CHL) represent two plays on China's new found consumerism coupled with strong dividends.

Taiwan's technology prowess is well known, but it is equally as impressive as a dividend payer. The iShares MSCI Taiwan Index (NYSE:EWT) currently yields 2%, while individual firms such as Taiwan Semiconductor (NYSE:TSM) and Chunghwa Telecom (NYSE:CHT) yield 4.6% and 5.8%, respectively. Investors may want to consider the small nation in their search for dividends.

Bottom Line
When investors look towards Asia, they tend to focus on the growth aspects. While this growth is certainly a major consideration, equally as important is the regions focus on dividends. These strong high yields could be exactly what investors are looking for in emerging market exposure. Gaining access through funds like iShares MSCI Singapore (NYSE:EWS) or individual equities like Woori Finance (NYSE:WF) is easy. (For additional reading, take a look at Finding The Best Yields.)

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