Among developed markets, the U.S., and otherwise, Japan spent decades being a dividends outlier. Companies in the Land of the Rising Sun were notoriously tight-fisted with free cash flow. They’ve rarely opted to embrace shareholder rewards on par with American, Australian, British, and European counterparts.
To some extent, that’s still reflected today, as the MSCI Japan Index sports a dividend yield of just 0.92%, or 56 basis points below the comparable metric on a S&P 500 ETF. That low yield on the MSCI Japan Index belies the country’s increasingly attractive dividend proposition.
Among ETFs, the WisdomTree Japan Hedged Equity Fund (DXJ) is a solid option for investors looking to pair dividends with Japanese stocks. That much is confirmed by the fund’s dividend yield of 2.90%, which is high within this asset class. The potency of pairing dividends with currency hedging has been on display in recent years. Over the past three years, DXJ surged 86.6%, while the unhedged MSCI Japan Index slipped 0.30%. Plus, the WIsdomTree fund sported slightly lower annualized volatility during that span than did the Japan benchmark.
DXJ Can Deliver on Dividends
An attractive feature of the Japanese payout story is that there’s substantial room for growth. This could enhance the appeal of DXJ for long-term investors.
“Nikkei compiled dividend plans of listed companies that had made comparable figures available in the previous fiscal year, and took note of market forecasts. The dividend forecast for the fiscal year ending in March 2024 is 15.22 trillion yen ($109 billion) — about a 100 billion yen more than the record high in the year ending in March,” reported NikkeiAsia.
There’s another noteworthy element to the DXJ investment thesis. Japanese companies are embracing multiple forms of shareholder rewards, including share repurchases., which serve as earnings-per-share boosters.
“The pace of buyback announcements is on a par with the previous year when the annual total recorded the largest ever of 9.4 trillion yen. In the stock market, an increasing number of experts are predicting that annual share buybacks this year will equal or exceed last year,” according to NikkeiAsia.
The publication noted that, as of the middle of this year, at least 64 Japanese companies, announced plans to increase buybacks, dividends, or both. Plus, data supports the room-for-growth thesis. In Japan, the percentage of excess capital returned to shareholders is just 50%. That’s well below the rates of 70% in Europe and nearly 100% in the U.S.
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