What are we looking for?
Japanese dividend-payers set to move even higher with the country’s soaring stock market.
The screen
Canadian investors have been cool to Japanese stocks for many years given the country’s stagnant economy and its impact on Tokyo markets. Still, the Nikkei Stock Average is now hitting all-time highs, spurred by the weak yen and corporate governance changes meant to boost investor returns. More broadly, government policy moves have encouraged more women to enter the labour force, helping offset concerns about Japan’s aging population.
We’re searching for profitable Japanese companies with strong growth prospects. Moreover, we’ve focused on companies offering North Americans easy access through American Depository Receipts (ADRs) traded on the New York Stock Exchange. ADRs let you hold the same shares traded on the Tokyo exchange.
From that broader list, we applied our TSI Dividend Sustainability Rating System to income stocks. It awards points to a company based on several factors:
- One point for five years of continuous dividend payments, two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency 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 dividends;
- One point if the company is an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six Japanese ADRs poised to move even higher, while lifting their dividends. Toyota Motor Corp. TM-N and Honda Motor Co. Ltd. HMC-N – Japan’s two biggest auto exporters – are buoyed by strong U.S. demand and the low yen. Canon Inc. CAJPY remains one of the country’s top tech manufacturers, with the low yen also a big plus. Nippon Telegraph & Telephone Corp. NTTYY is the leading integrated telecommunications operator in Japan. Meanwhile, Japan’s largest bank, Mitsubishi UFJ Financial Group Inc. MUFG-N, continues to benefit from increased lending – as well as higher fees and commissions from the country’s soaring stock market. And finally, global financial-services giant Orix Corp. IX-N keeps profiting from its range of operations in banking, insurance, real estate and private equity.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton