What are we looking for?
Sustainable dividends from publicly listed Japanese companies set to move even higher.
The screen
Billionaire investor Warren Buffett, through his holding company Berkshire Hathaway, is now moving funds out of mainland China and Taiwan and into Japanese companies across a broad range of industries. The migration in large part reflects increasing political risk as the United States and China square off on the global stage.
Like most countries, Japan needs a strong global economy – driven by the U.S. and, yes, China – to show sustained growth. Still the land of the rising sun has the advantage of being a veteran democracy with a solid banking system and top international currency. All that bodes well for the economy’s future prospects and those of its leading companies.
Note that Canadian investors can easily access Japanese stocks through American depositary receipts traded on the New York Stock Exchange. ADRs let you hold virtually the same shares traded on the Tokyo exchange.
We searched for Japanese companies with strong growth prospects. We then pinpointed dividend-payers before applying our TSI Dividend Sustainability Rating System. It awards points to a stock based on key 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’s an industry leader.
Companies with 10 to 12 points have the most-secure dividends, or the highest level of 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 seven Japanese ADRs ready to move higher for investors as they also increase their dividends. Toyota Motor Corp. TM-N and Honda Motor Co. Ltd. HMC-N – two of Japan’s biggest auto exporters – will be buoyed by rising demand for electric vehicles (EVs). The country’s largest bank, Mitsubishi UFJ Financial Group Inc., MUFG-N is well positioned for success, with its strong retail deposit base and high capital reserves. The same applies to rival global financial-services giants Sumitomo Mitsui Financial Group Inc. SMFG-N and Orix Corp. IX-N Meanwhile, Sony Group Corp. SONY-N makes electronic equipment, instruments, devices, game consoles, software, entertainment media and more. And finally, Takeda Pharmaceutical Co. Ltd. TAK-N is the largest pharmaceutical company in Japan, in addition to being a global leader.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton