Japanese shareholder returns hit ‘record levels, and still have plenty of room to grow' - expert comment

Polina Hoare, 04/03/2019

Despite challenging market conditions, Japanese companies are expected to deliver record shareholder returns in the current fiscal year, Richard Aston, portfolio manager of the CC Japan Income and Growth Trust and the CC Japan Income and Growth Fund, told thewealthnet.

Investor payouts have been increasing in the country since the financial crisis thanks in part to a government-backed drive to improve corporate governance.

“The situation is still emerging, with the total amount being paid back to stakeholders in Japan trailing many other developed nations. However, the region’s rate of dividend payment and share buyback growth is world-leading. With plenty of room left for improvement, we believe this progress can continue over coming years to create some serious opportunities for income and growth investors.”

Like many developed markets around the world, Japanese equities suffered a rough 2018, and the country’s Nikkei index declined by 12 percent over the period. Like many parts of the world, it was hit by trade conflicts between the US and China, fears over rising interest rate, and concerns that global growth is slowing, Mr Aston said.

However, despite this backdrop, Japan’s listed companies are still expected to have delivered record returns to investors over the period. According to Nikkei figures, total shareholder returns are expected to top 15 trillion yen ($137.9 billion) in fiscal 2018. This figure would be 25 percent higher than the previous fiscal year and double that achieved five years ago.

Several factors have driven this significant increase in investor payments.

"Firstly, the year has seen numerous major listed companies announce share buyback plans, helping to boost the overall return figure. These names include mobile phone operator NTT Docomo and electronics firm Toshiba, which plan to purchase stocks worth about 60 billion yen and 70 billion yen respectively over the period.

"Meanwhile, slowing wage growth in the country has also lifted returns. According to Finance Ministry data, pre-tax profits at surveyed companies advanced 36 percent in the July - September period of 2018 compared to five years ago.

"In comparison, labour costs increased just 14 percent over the same period. Likewise, wages as a share of corporate profits have also declined. The average of the past four quarters comes in at 44 percent, four percent lower than five years earlier."

Mr Aston highlighted the fact that underpinning both these drivers is a cultural shift among Japanese businesses towards rewarding their investors more generously.

Buybacks and dividends have been increasing dramatically since the global financial crisis. For example, dividends paid by companies included in the MSCI Ja...

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