Japan: Land of the Rising Sun—and Rising Dividends

Global Chief Investment Officer
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WisdomTree conducts an annual screening to measure dividends paid in its developed international Index family. The annual rebalance provides a plethora of data about how dividends are changing across regions, sectors and companies. At this year’s screening, there were a few notable standouts in terms of growth in Japan dividends:   Japan’s Dividends Set New Record: This year’s Japan Dividend Stream®—measured in the local currency, the yen—set a new record of ¥9.03 trillion.1 This number is almost double what the Dividend Stream was at its bottom in 2010. The growth in dividends reflects the increased profits of corporate Japan, as well as companies’ better balance sheet management.   Three-Year Growth Differentials and Yen Impact: Over the last three years (since the 2012 Index screening), Japan dividends are up 56% when measured in yen, but they are down 1.6% when measured in U.S. dollars. This change in the exchange rate over the last three years shows how much currency can detract from the experience of local markets. In fact, in U.S. dollar terms, the 2015 dividends were lower than the 2014 dividends and even lower than the 2012 dividends, before Prime Minister Abe was elected at the end of 2012 and ushered in new economic initiatives aimed at restoring growth in Japan.   Japan Dividend Stream in both U.S. Dollars (USD) and Yen Terms Untitled-28 For definitions of indexes in the chart, visit our glossary.   Sector Dividend Stream Growth Was Also Broadly Positive in Japan This year’s 14.9% growth in dividends was led by the technology sector, which saw dividends grow by almost 20%. To gain greater insight into this 20%, we looked at the 10 largest Japanese dividend payers within this sector. Four companies stood out for at a minimum doubling their dividends per share compared to the prior year:
Yahoo Japan Corporation: An embodiment of the current Japanese trend of returning cash to shareholders, Yahoo Japan Corporation doubled its dividend from the 2014 fiscal year. The company was able to pay over ¥50 billion in dividends from its retained earnings.2
Tokyo Electron increased its dividend per share from ¥25 to ¥68—approximately 170%! The source of this cash: surplus earnings.3
Seiko Epson Corporation increased its dividend per share by 130%!4
Fujitsu doubled its dividend per share.5
  Industrials were another sector with close to 20% growth. Fanuc represented the largest Japanese dividend payer in this sector; the firm doubled its dividend payout ratio from 30% to 60% as part of its recent focus on returning more profits to shareholders.   Japan Dividend Stream Growth by Sector Japan Dividend Stream Growth by Sector This new dividend data not only affords a broad cross-market view of Japan’s fundamentals, but also provides the basis for relative valuation insights. WisdomTree’s annual rebalance of its Japan-focused Indexes that entail a disciplined process focused on relative valuations. These changes generally can be described as:
• Stocks getting more expensive—measured on a price-to-dividend basis—receive less weight
• Stocks getting less expensive—measured on a price-to-dividend basis—receive more weight
Rebalancing back to the Dividend Stream is a critical way to help manage valuation risks. Japan’s markets remain among the more reasonably priced in the major international regions; despite strong gains over last three years, the market has been driven by underlying earnings growth. We see here that the dividend growth also was fairly healthy, and we think that the renewed focus on shareholder returns being displayed broadly in Japan has the potential to lead to further growth of dividends in the future.       As of the 5/31/2015 Index screening date, in the WisdomTree DEFA Index: Yahoo Japan Corporation was a 0.08% weight, Tokyo Electron was a 0.04% weight, Seiko Epson Corporation was a 0.04% weight, Fujitsu was a 0.03% weight, and Fanuc was a 0.24% weight.           1Sources: WisdomTree, Bloomberg, Standard & Poor’s, with data as of the 5/31/15 annual rebalance. 2Source: Yahoo Japan Corporation, Notice of Cash Dividend Paid from Retained Earnings, 5/21/15. 3Source: Tokyo Electron, Notice Concerning Payment of Dividends from Surplus Earnings (for the Fourth Quarter of the Fiscal Year Ended March 31, 2015), 5/13/15. 4Source: Bloomberg. 5Source: Bloomberg.

Important Risks Related to this Article

Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments focused in Japan increase the impact of events and developments associated with the region, which can adversely affect performance. Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

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About the Contributor
Global Chief Investment Officer
Follow Jeremy Schwartz

Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.