Page 21 - DIY Investor Magazine | Issue 32

This is a fairly blunt measure but nevertheless demonstrates that income investors in Asia have a broad universe of companies to pick from. Next, dividends in Asia come from a relatively large number of companies, whereas in the UK they are much more highly concentrated in just a handful of stocks. The chart below shows how fewer than 10 stocks make up 50% of the income from the MSCI UK index. By contrast, the corresponding figure for Asia is close to 50 stocks.
Again, this highlights the wider opportunity set that Asia offers for investors to choose from. This greater number of income payers making up 50% of the income also potentially makes Asia a more resilient source of income as it means investors are less reliant on any single company than they are in the UK.
The final chart illustrates another key consideration for income investors: the resilience of company dividends.
The chart below compares the dividend pay-out ratio of companies in the Asia ex Japan index compared to that of the UK index. The pay-out ratio is the proportion of earnings paid as dividends, and as we can see this is lower in Asia than in the UK.
What this means is that if the economy slows and earnings become more volatile, Asian companies on average have a buffer.
We’ve seen over time in Asia that when earnings come under pressure, companies that have a lower pay-out ratio don’t necessarily have to cut their dividends. Instead, this buffer gives them the flexibility to allow pay-out ratios to rise until earnings have recovered.
A lower starting pay-out ratio also offers potential scope for future dividend growth. Taken together, we think these charts show that Asian shares are an attractive proposition for income investors, offering both higher dividend yields than many other markets in combination with a wide set of opportunities.
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DIY Investor Magazine · Feb 2022