What are we looking for?
Sustainable dividends from Japanese companies set to move even higher.
The screen
Canadian investors have been cool to Japanese stocks since the 2008 economic crisis and the repeated recessions for Japan that followed. That's despite easy access through American depositary receipts traded on the New York Stock Exchange. ADRs let you indirectly hold the same shares traded on the Tokyo exchange.
But the Nikkei stock average has just broken past its two-decade high and newly re-elected Prime Minister Shinzo Abe plans to stick to his economic stimulus program and reforms. That strategy has kept interest rates and the yen low while boosting exports and domestic consumption.
We searched for profitable Japanese companies that will be spurred by more growth. We then pinpointed dividend-payers before applying our TSI Dividend Sustainability Rating System. It awards points to a company based on eight key factors:
- One point for five years of continuous dividend payments – two points for more than five years;
- Two points if those payments have been raised in the past five years;
- One point for management’s public commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to currency exchange rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow to cover dividend payments;
- One point if the company is a leader in its industry.
Publicly traded companies with 10 to 12 points have the highest sustainability rating; those with seven to nine points are above average; four to six points, average; and one to three points, below average.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – Pat McKeough's group of Canadian investment newsletters. They include our award-winning flagship newsletter, The Successful Investor, which covers TSX index stocks. The TSI Dividend Advisor is a 2016 addition. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six Japanese ADRs ready to move higher, while growing their dividends.
Toyota and Honda – Japan's two biggest auto exporters – are also buoyed by rising domestic demand. Canon remains one of the country's top tech manufacturers, with the low yen a big plus. Leading wireless provider NTT DoCoMo has growing operations across Asia. Meanwhile, Japan's largest bank, Mitsubishi UFJ Financial, continues to benefit from increased lending – both domestic and global. The same applies to global financial-services giant Orix. All six of our top ADRs appear in the accompanying table.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.