Where are all the dividends going?

While foreigners have been busy buying into Japanese stocks, locals have been selling out, and managers of Japanese companies are busy slashing dividends.

Have we been somewhere like this before?

In June last year, I pointed out that stock purchase intentions amongst locals were at a record high while foreigners were leaving in droves. I was a big buyer. Actually no, I was already fully invested.

We are now in the directly opposite scenario. And I am surprising myself my still being net long. Through gritted teeth.

The last few months have been difficult. I have felt like someone who frequents CNBC, or a child visiting a curiosity shop in Weimar Germany. The moment I stop to pick something up it goes up in price and then I find some other shiny object – pretty much the opposite problem to that I usually encounter. What have I become? Would Ben Graham approve?

Still, if you are managing lots of foreign money and have been “buying Japan”– I would like to personally thank you for making the last two quarters for me.

Here are the top dividend payers in Japan with a current ratio > 1.0, shown with their dividends for the current FY and the dividend outlook.

Enjoy.

And if you think it is just because high dividend stocks tend to have a lot of one-off dividends, then…

…you are partially right, but…

How far down this list do you need to go to find a company planning to raise its dividend?

Down to 日本エス・エイチ・エル  (4327), an old friend, currently yielding 3.87%, going up to 4.0% next year. How many stocks do you need to go through before you get to that one? 107.

The next one is 船井総合研究所  (9757), at position 114 (FY12/13E yield: 3.8%/ 4.3%).

The bottom line is that out of the top 200 dividend-payers sampled, only about ten are planning on increasing payouts, while a multiple of that number is planning on dividend cuts. Even factoring in normalization of one-off payments, this is still not a picture of corporate money-splashing, as targeted by Abenomics. So far, the idea has been that we lift animal spirits and get everyone spending money. There is evidence of more posh watches being bought in Ginza, but unless capital allocators get into the rhythm and start boogying, the threat of the plug getting pulled on the party will loom larger.

The problem Abe and his ‘nomics will face, once the devaluation premium is fully in the exporter share prices, will be the valley of despair – the gap between the celebratory champagne cork-popping and the delivering of reality on the home front, assuming that reality will be delivered as expected, and not in the fashion of a Domino’s pizza. There are lags between getting everyone juiced up on the idea of inflation (even though TV propaganda machine is going full blast), untying the capex purse strings, and then the multiplier effect getting to work on real domestic demand. At the moment the odds are looking good that we can get the multiplier moving, but how will the situation look in the summer months, when the electricity limits will have an even bigger relative restraint on growth than before?

Meanwhile, if foreigners do not continue to buy more than domestic funds are selling, then we risk triggering a self-reinforcing cycle of a rising yen and falling stocks.

Oh, and one more thing – most stocks go ex-div on Mar 27, but you knew that anyway, right?