Dividend payer blazing a trail of Eastern promise

BUSINESSES based in the Far East are not renowned for rewarding shareholders with attractive dividend payments. But the picture is changing as many companies realise they need to keep their investors sweet.

This more income-friendly environment explains in part the success of Henderson Far East Income, a £500 million investment trust that currently provides investors with an annual income in the region of six per cent – with dividends paid every quarter. It is a level that few income-oriented funds are able to deliver from the UK stock market, where 4.5 per cent per annum is more the norm.

The trust is managed out of London and Singapore by Michael Kerley and Sat Duhra respectively. Between them they oversee a portfolio of 50 stocks, comprising a mix of dividend-friendly companies and businesses with a growing reputation for putting a bigger slice of their revenues into the pockets of shareholders.

The portfolio is evenly distributed, which means individual stocks rarely represent more than three per cent of the trust’s assets. There are holdings in companies based right across the region, from Anglo-Australian mining giant Rio Tinto (the world’s biggest dividend payer) through to Taiwanese electronics giant Taiwan Semiconductor Manufacturing. The ‘high yielders’ held in the trust are primarily businesses with a utility, infrastructure or property bent that generate a lot of income

– the likes of Hong Kong telecoms giant HKT Trust & HKT, Macquarie Korea Infrastructure and Singapore based property company Mapletree Commercial Trust.

These are then complemented with more growth oriented stocks that Kerley and Duhra believe will increase dividends as their businesses expand. In this camp sit the likes of Anta Sports, China’s third largest supplier of sportswear behind Adidas and Nike – and Australian wine producer Treasury Wine Estates that is thriving on the back of strong exports to China.

Although global data compiled by Janus Henderson – the investment group that Kerley and Duhra work for – suggests that dividends in the Asia Pacific region are under pressure (down 2.9 per cent in the second quarter of this year), Kerley is far more positive.

He says the investible universe for income stocks in the region is ‘huge’ and constantly growing as the dividend culture becomes more entrenched. Through careful stock selection, he believes the trust can continue the dividend growth record it has clocked up under his watch since he came on board in 2007.

Indeed, he believes that dividend growth of some seven per cent overall is likely over the coming year from the kind of stocks he is interested in.

Kerley says: ‘If you look at the proportion of earnings that Asian Pacific companies are paying out to shareholders, it remains low compared to other parts of the world. That is reassuring because it means there is a buffer in place if earnings come under pressure as a result of any hiccup in global growth. Asian based companies will therefore not be forced to cut their dividends.’

He also believes the trust’s income reserves – equivalent to two thirds of a year’s dividend payments to shareholders – should provide investors with reassurance. These can be drawn upon if necessary to supplement shareholders’ income payments if dividends in the region do suffer from any global downturn.

The trust’s management fee is relatively high at 0.9 per cent, but over the past five years it has delivered overall returns of 45 per cent.