How to grab a slice of grow­ing Asian in­come / Back proven stock-picker Richard Penny to main­tain his stel­lar record

Div­i­dends are ris­ing fast in the Asia Pa­cific re­gion and sev­eral funds are poised to cap­i­talise

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In­come-seek­ing in­vestors may want to in­ves­ti­gate Asia, where im­prov­ing cor­po­rate gov­er­nance and fast-grow­ing earn­ings are help­ing to drive div­i­dend growth de­spite the pre­vail­ing neg­a­tive sen­ti­ment to­wards emerg­ing mar­kets.

Div­i­dends from com­pa­nies across the Asia Pa­cific re­gion leapt 15.9% to a record £222.6bn over the past 12 months. That com­pares with av­er­age div­i­dend growth across the rest of the world of just 5.5%.

ASIAN IN­COME GROWTH

Re­search from the Hen­der­son Far East In­come (HFEL) trust shows the Asia Pa­cific re­gion now ac­counts for one pound in ev­ery six paid out in div­i­dends world­wide. At the same time, re­gions which have been more tra­di­tional hunt­ing grounds for pay outs are see­ing their div­i­dends dwin­dle – in 2009 the US ac­counted for one pound in ev­ery 10 paid out to share­hold­ers in the world, but this fell to one pound in 12 last year.

Mean­while, the an­nual value of div­i­dends in Asia Pa­cific has more than tripled over the past decade. Be­tween 2009 and July 2018, firms in the re­gion paid out a to­tal of £1.3tn to share­hold­ers.

Brian Den­nehy, di­rec­tor at FundEx­pert, ex­plains: ‘Asia is home to vast, grow­ing mid­dle class pop­u­la­tions, coun­tries with lower debt lev­els and in­no­va­tive com­pa­nies with the po­ten­tial to hugely in­crease pro­duc­tiv­ity. By 2030, a quar­ter of Euro­peans will be over 65 but only 12.5% of Asians.

‘That rep­re­sents an ex­tra­or­di­nary global re­bal­anc­ing, which will drive com­pany prof­its and div­i­dends for decades to come.’

ASIA OVER­LOOKED BY IN­COME IN­VESTORS

De­spite the statis­tics, how­ever, few in­vestors would think of Asia as an area for in­come. The re­gion is best-known for its fast-grow­ing economies and in­no­va­tive tech com­pa­nies. Only around £4bn is in­vested in Asian in­come funds com­pared to a hefty £61.5bn held by in­vestors in UK Eq­uity In­come funds.

But there may be a valid rea­son for that dis­par­ity: div­i­dend pay outs ra­tios (the pro­por­tion of its prof­its a com­pany gives back to share­hold­ers) are still com­par­a­tively low in Asia, so although div­i­dends are ris­ing

rapidly this is from a low base.

In­deed, only half a dozen Asia fo­cused funds yield more than 4%. Chief among them is the Schroder Asian In­come Max­imiser (B581S49) fund, which yields 7.2%, how­ever this uses de­riv­a­tives to boost its pay outs, which some in­vestors might not be com­fort­able with. The stan­dard ver­sion of the fund, Schroder Asian In­come

(B559X85), yields 3.9%. Port­fo­lio man­ager Ru­pert Rucker says: ‘When peo­ple think about Asia they think of high­growth ar­eas such as China and In­dia, but there are more ma­ture economies in the re­gion such as Aus­tralia, Hong Kong and Sin­ga­pore where the com­pa­nies are in­cred­i­bly sta­ble and have been pay­ing div­i­dends for more than 50 years.’

RIS­ING TREND SET TO CON­TINUE

In­vestors in the re­gion are con­fi­dent the up­ward trend in div­i­dends will con­tinue, so now may be a good point of en­try while the mar­ket is still rel­a­tively cheap.

Sat Duhra, port­fo­lio man­ager of Janus Hen­der­son Hori­zon Asian Div­i­dend In­come

(B1JPCL7), says com­pa­nies have record lev­els of cash on their bal­ance sheets, are see­ing cap­i­tal ex­pen­di­ture fall and for­eign in­vest­ment in­crease. At the same time, re­forms in the re­gion are en­cour­ag­ing com­pa­nies to start re­ward­ing their share­hold­ers.

‘The en­ergy, ma­te­ri­als and fi­nan­cials sec­tors have been very strong, pay­ing out div­i­dends way above our ex­pec­ta­tions,’ he ex­plains. The fund, which yields 5.6%, has around a quar­ter of its as­sets in Chi­nese firms, with fur­ther in­vest­ments in Aus­tralia and South Korea. Top hold­ings in­clude China Con­struc­tion Bank, com­modi­ties gi­ant BHP Bil­li­ton

(BLT) (also listed in the UK), and chem­i­cal com­pany Sinopec.

Mike Ker­ley, man­ager of Hen­der­son Far East In­come trust, ex­pects the record break­ing in the re­gion to con­tinue – he is fore­cast­ing un­der­ly­ing div­i­dend growth of al­most 11% over the next 12 months. He says: ‘The Asia Pa­cific re­gion is more than just a cru­cible of in­vest­ment and growth, en­tic­ing in­vestor in­ter­ested in cap­i­tal gains. As economies have de­vel­oped and com­pa­nies have ma­tured, it is now a huge in­come-gen­er­at­ing ma­chine too.’

TAI­WAN AND SOUTH KOREA SEE FASTEST GROWTH

Tai­wan and South Korea have seen the fastest div­i­dend growth, with pay outs up al­most 150% since 2013. Ker­ley says chem­i­cal com­pa­nies, whose pay outs have

in­creased seven-fold, have been lead­ing the way, with growth also com­ing from the bank­ing and tech­nol­ogy sec­tors and firms that are ben­e­fit­ing from a boom in con­sumer goods man­u­fac­tur­ing.

For in­vestors con­sid­er­ing the re­gion, Den­nehy par­tic­u­larly likes the Lion­trust Asia In­come (B7BZB32) fund as a good op­tion for com­bin­ing in­come – cur­rently it yields 4.8% - and cap­i­tal growth. “Rein­vest­ing the in­come pro­vides a fan­tas­tic kicker,” he points out.

He also likes New­ton Asian

In­come (B8KT2R3), which has been par­tic­u­larly strong in nav­i­gat­ing the ef­fects of trade war threats and an­tic­i­pat­ing prob­lems in the Chi­nese bank­ing sec­tor. The fund yields 4.4%.

Den­nehy adds: ‘There are some great UK eq­uity in­come funds do­ing a fan­tas­tic job of grow­ing their div­i­dends con­sis­tently, but in­vestors should not for­get that there is a whole world of in­come op­por­tu­ni­ties that they can ben­e­fit from.’ (HB)

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