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WisdomTree comments on Japan dividend growth


Jeremy Schwartz, Director of Research at WisdomTree, has commented on the fact that Japan is leading dividend growth in international markets.

Schwartz writes: “Once a year, WisdomTree conducts a rebalance of its dividend-weighted stock indices which adjusts positions based on changes in relative valuations. We measure these relative valuations by examining stock price movements versus fundamentals in international markets. The primary variable we are utilising in our broad-based index strategies is a company’s Dividend Stream.

“At this year’s May rebalance, we noticed how Japan is leading the international markets in terms of underlying dividend growth. Looking across regional indices, whether looking at the trailing three-year or trailing five-year changes in dividends, Japan stands out from broad international indexes like MSCI EAFE or MSCI Europe.

“The five-year numbers come in at almost double digits—very close to the US markets, while for the latest three years, Japan actually came out with a dividend growth figure higher than the US. On a longer-term perspective, over the last 10 years—and that is a period that includes the financial crisis that caused dividend levels to sink across the globe—Eurozone regional indices still show lower overall dividends in 2017 than they did in 2007, but the three-year dividend growth shows a meaningful pickup recently.”

Schwartz writes that from a valuation perspective, the WisdomTree Japan Hedged Equity Index was already among the lowest priced indices that WisdomTree calculates for developed world exposure—and the index rebalance did not change those statistics noticeably.

“The price-to-earnings (P/E) ratio before and after was right around 13x earnings, and the dividend yield was 2.5 per cent. Interestingly, that is approximately 25 per cent higher than the ~2 per cent dividend yield on the S&P 500, and we saw dividend growth levels for Japan rivalling the increases in dividends we see in the US.”

Schwartz concludes: “Given lower returns on equity (ROE) in Japan—but a renewed focus on improving these ROE metrics—and high cash on the balance sheets among corporate Japan, it is our expectation that Japanese equities still have room to increase dividends and buybacks at a pace that rivals or can beat the US.”

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