In dollar terms, China is already the largest emerging markets dividend payer. But as highlighted by a dividend yield of 1.94% on the MSCI China Index, there’s room for payout growth in the world’s second-largest economy.
In fact, that’s exactly what the government there wants to see. The China Securities Regulatory Commission recently said it wants Chinese companies to boost shareholder rewards, both buybacks and dividends. It’s promised to increase scrutiny of those firms that aren’t engaging in either practice.
Should more Chinese companies decide to comply with that demand, ETFs such as the WisdomTree Emerging Markets High Dividend Fund (DEM ) could benefit. The $2.58 billion fund allocates nearly 20% of its weight to Chinese stocks, second only to its exposure to Taiwan.
China Getting Tough on Dividends
DEM, which is about 16.5 years old, allocates nearly 45% of its weight to financial services and energy stocks. In developing economies, those sectors often feature large exposure to companies that are considered state-owned enterprises. That means the governments are those firms’ largest shareholders.
It’s often said that governments’ interests aren’t always aligned with those of other market participants. But there’s also credibility to the assertion that governments, particularly in emerging markets, can be forces for good when it comes to fostering dividend growth.
“China has taken a tougher stance on firms that refuse to issue dividends to investors over the years. In 2017, then-CSRC Chairman Liu Shiyu said the regulator would take steps against ‘those iron roosters which have the ability to offer cash dividends but never plucked a feather,’” reported Bloomberg.
The regulatory agency is also asking Chinese firms to increase the frequency of dividend payments and smooth out interim payouts. As investors in the U.S. know, dividend-paying companies bashed here typically deliver payouts on a quarterly basis. But many dividend payers in international markets may only deliver two payouts per year.
Even without the cajoling of Beijing, there’s still credibility to the China dividend story and it’s potentially rewarding for DEM investors. Data indicates Chinese dividends could hit all-time highs this year and, amid depressed valuations, Hong Kong-listed companies are boosting buyback programs.
“Leading the dividend payouts this year are some of China’s biggest state-owned banks, Bloomberg-compiled data shows. They are followed by oil producer PetroChina and liquor maker Kweichow Moutai,” reported The Business Times.
Several Chinese banks and PetroChina are members of the DEM portfolio.
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