The Most Wonderful Time of the Year (for Japanese Equities)

Ongoing Commitment to Shareholders Is New for Japan

These kinds of corporate shifts are what we find most exciting in Japan. FANUC’s example is made even more powerful given its ongoing commitment to shareholder returns rather than a single dividend raise or buyback.

Specifically, the five-year average total return ratio, meaning the ratio of combined dividend and share buybacks, over the total amount of consolidated net profit over a five-year period, is aimed at not exceeding 80%. If FANUC is more profitable, shareholders should expect greater dividends and buybacks with this policy, just as they should expect less if FANUC is less profitable.

What’s telling is that the firm considers that the 20% of net income retained from this policy is still more than enough to represent substantial future investment.²

Corporate Reform Isn’t Only about Dividends and Buybacks

The concluding point that we’d like to make is that although the focus on shareholder returns such as dividend and buyback increases has been an important catalyst and gets a lot of attention, it’s not the only part of the picture. Firms are also increasingly looking to appoint more outside directors to their boards, as part of a government-led initiative to improve corporate governance. FANUC proceeded in that direction as well, having appointed at least two independent board members to the company’s board.³ We take this as another positive sign that Japan Inc. is moving in the right direction for shareholders.

¹Source: Keita Sekiguchi, “In About-Face, FANUC Turns Friendly to Shareholders,” Nikkei Asian Review, 4/30/15.
²Source: Keita Sekiguchi, “In About-Face, FANUC Turns Friendly to Shareholders,” Nikkei Asian Review, 4/30/15.
³Source: Japan Exchange Group JPX-Nikkei 400 Methodology.

– See more at: http://www.wisdomtree.com/blog/index.php/the-most-wonderful-time-of-the-year-for-japanese-equities/#sthash.NF7fs1dM.dpuf