Investors, regardless of where they live, frequently display home country bias. That’s true of U.S. investors, but for those seeking quality stocks with durable dividends, it can pay to look beyond the confines of U.S. borders.
Enter the Guinness Atkinson SmartETFs Asia Pacific Dividend Builder (ADIV), which is one of the premier avenues for accessing attractively valued companies with strong dividend growth capabilities in the Asia ex-Japan region.
“Asian assets are attractively valued relative to more developed markets – based on forward earnings as at the end of September 2021, the MSCI All Company Asia Pacific ex Japan Index price/earnings (PE) ratio was less than 18; for the MSCI World Index, it was over 22 as at October 2021,” according to Trustnet.
This could imply that investors can access ADIV’s quality and knack for accessing steady dividend growers at attractive valuations. That’s notable because quality stocks usually trade at elevated multiples and rarely sport discounts of note.
Experienced dividend investors know that when investing for payout growth, it’s best to embrace profitable companies that don’t need debt or means of capital raises to fund payouts. On that note, many of the countries represented in ADIV are home to profitable companies that are growing earnings. Last year, Asia ex-Japan accounted for 36% of global profits.
“Taking a longer-term perspective, earnings growth has been more rapid than in other regions too. Over the last one, three, five and 10 years, Asia Pacific ex-Japan has beaten the rest of the world in the profits race. Since 2010, pre-tax earnings have risen 80% compared to just 2% for the rest of the world, thereby driving a marked increase in the region’s share of global profits,” notes Trustnet.
Adding to the allure of ADIV — and this is vital to long-term dividend growth — are strong balance sheets across Asia, indicating that dividend coverage ratios are sturdy.
“Balance sheets are stronger, and debt levels lower, in Asia Pacific than those prevalent elsewhere: Janus Henderson’s Corporate Debt Index for 2020 showed that Asia’s companies (excluding financials) owed just 6% of the world’s corporate net debt, compared to their 18% share of the world’s dividend payouts. Dividend cover levels are consequently much higher – at 2.4x rather than 1.6x – and free cash flow is strong, and so, from a financial perspective, one would have good reason for being optimistic, despite the peculiarity of recent times, about the region’s prospects,” concludes Trustnet.
For more news, information, and strategy, visit the Dividend Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.