Jeremy Glaser: Is it time for investors to look for Asia for dividend yield? I'm Jeremy Glaser with Morningstar.com.
I'm here today with Jesper Madsen, lead manager of the Matthews Asia Dividend Fund and the Matthews China Dividend Fund. Jesper, thanks so much for talking with me today.
Jesper Madsen: Thank you.
Glaser: A lot of people, when they think of Asia investing, they think of it as a growth story, but you really look at it as an income story. How do come to that realization that there was a dividend story there?
Madsen: In actuality, just for the same reasons that investors go to Asia for the earnings growth. That earnings growth is increasingly feeding into dividend growth.
So it's not just an income story, it's also a matter of actually the growth of that income over time that makes Asia an attractive place to look for total return, so the mixture of dividend yields today, but also the earnings growth over time.
For instance, it may seem counterintuitive to most people, but Asian companies, if you look at it from a broad perspective, like the MSCI Asia Pacific Index is a broad proxy for the region, the constituents within that index actually now pay out about the same as the S&P 500 constituents, for instance, about $200 billion paid out in dividends by both of those I would say broad proxies for the economies in Asia and for the economy in the US.
But more importantly though is, again, it may seem counterintuitive, but Asia actually yields higher than that of the U.S. To give you the numbers, currently for 2010 the estimates are 2.5 percent for the MSCI Asia Pacific Index compared to two percent for the S&P 500, so 50 basis point-yield pickup by actually moving to what is well recognized as being a faster growth region of the world.
If you take out Japan from that index, you slip closer to three percent. Historically as well, you have been able to get that kind of yield pickup by going to Asia.
Now we've been told for many years that if you want to have growth, you need to accept lower dividend yields. That's actually where, again, Asia stands out. You have faster growth rates in the dividend.
To give you some numbers in that as well, we froze the index constituent members back in 2002 for both the MSCI Asia Pacific Index and for the S&P 500. Then we ran basically the analysis of the dividend growth over a period from 2002 to 2008, and what we found was that dividends grew by 18 percent on an average annual basis in Asia compared to 10 percent for the S&P 500.
Now that doesn't include the 21 percent dividend cut that we saw for the S&P last year. If you include that, the S&P only grew its dividends by about seven percent.
Again, you have a large universe. It's not a small sliver of Asian companies. We have about 5,000 companies in Asia that pay dividends. Now all of them may not be attractive for a dividend investor, but that just gives you a raw sense of the number of companies we can work with. You have high dividend yields, and then you have that high dividend growth rate as well.