China stock payouts get whole lot better

SHANGHAI: One of foreign investors’ most popular domestic Chinese stocks provided a jolt last week when the company suspended its dividend. But that move masked what’s been a notable trend to increase payouts.

And that trend is likely to strengthen as onshore Chinese companies join MSCI Inc international stock indexes, giving the incentive to make themselves more attractive by offering steady income streams.

The nation’s securities regulator has made cracking down on “iron roosters” – a Chinese saying for a stingy character – a top priority in 2018. Authorities have for years pushed for higher dividends to help develop the equity market.

“We have seen lots of improvement among Chinese corporates over the past few years – whether it’s from the state-owned enterprises or private companies” when it came to dividends, said Janet Tsang, a client portfolio manager of emerging-market and Asia-Pacific equities at JPMorgan Asset Management.

“There’ll be more room for improvement” in the payout ratio, she said.

Last week’s surprise omission of a dividend on 2017 results by Gree Electric Appliances Inc, China’s biggest maker of air conditioners, triggered a rapid reaction.

The next morning, the company said Shenzhen Stock Exchange demanded to know the reason for the move. Hours after that, Gree said it would propose interim payouts for 2018.

The flap over Gree, which at one point had more than 8% ownership on the part of investors via the Hong Kong stock connect, was set against the following broader trends:

Some 213 out of the 232 firms on a preliminary list for inclusion in MSCI stock indexes proposed to pay dividends for 2017, according to data compiled by Bloomberg.

Total dividends proposed amount to 826.3 billion yuan (US$130bil), or 34% of the companies’ combined profits. That’s the highest payout ratio since 2010.

The dividend payout ratio for members of the CSI 300 Index, a gauge of large-caps, has been increasing since 2011, with firms paying at least 30% of their net incomes in dividends in the past three years. — Bloomberg