The current dividend yield on the S&P is 2.30% as of Dec 20, 2013. Compared to this low yield, some markets in the Asia Pacific region have higher yields while others have similar low yields. The dividend yields of select Asian countries according to data from Financial Times are listed below:

Australia – 4.1%
China – 4.5%
Hong Kong – 2.9%
Indonesia – 2.7%
India – 1.7%
Philippines – 1.9%
South Korea – 1.1%
Taiwan – 2.7%
Thailand – 3.3%

Investors generally invest in Asian stocks mainly for price appreciation and not for dividend returns. This is particularly true for investments made in emerging Asian countries. However this need not be the case. Instead of simply focusing on price appreciation, investors must consider total returns which includes both price appreciation and dividend returns.

Asian dividend stocks should be part of well-diversified portfolio. Some of the reasons for holding dividend stocks from the Asia Pacific markets include:

• Dividends boost the total return even when the yields are low such as the Korea market with its 1.1% yield.
• They help reduce volatility in a portfolio. Unlike developed markets, Asian emerging markets are highly volatile. It is not uncommon for stable large-cap stocks such as those in consumer staples, banking, utility sector to swing 5% to 10% from one day to another.
• Dividends can account for a large portion of total returns in the long-term.
• Many emerging Asian companies are embracing the dividend culture and are increasingly paying out a larger portion of profits to shareholders.
• In some countries, the government is the majority shareholder in publicly-traded companies which were formerly state-owned monopolies. These companies regularly pay out big dividends in order to please the government.

According to a research report by Nikko Asset Management annualized volatility for Asia-Pacific equity markets since 1988 was 21.8% which is much higher than the US rate of 14.8%.

The following chart shows the importance of dividends in Asian equity returns over the long-term:

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On a yearly basis dividend returns are small compared to price appreciation. However for the period from 2001 to 2012 dividends accounted for an astonishing 30% of the total returns.

The chart below shows how reinvestment of dividends boosted total returns by more than 50% during the same time period:

Source: High Dividend Investing – East Side Story, Nikko Asset Management, Singapore

Ten Asia-Pacific dividend stocks are listed below for further research:

1.Company: Taiwan Semiconductor Manufacturing Co Ltd (TSM)
Current Dividend Yield: 3.15%
Sector: Semiconductors
Country: Taiwan

2.Company: PetroChina Co Ltd (PTR)
Current Dividend Yield: 3.68%
Sector: Oil & Gas Operations
Country: China

3.Company: Philippine Long Distance Telephone Co (PHI)
Current Dividend Yield: 4.14%
Sector:Communications Services
Country:Philippines

4.Company: China Petroleum & Chemical Corp (SNP)
Current Dividend Yield: 4.40%
Sector: Oil & Gas Operations
Country: China

5.Company: Chunghwa Telecom Co Ltd (CHT)
Current Dividend Yield: 5.81%
Sector: Telecom
Country: Taiwan

6.Company: PT Telekomunikasi Indonesia (TLK)
Current Dividend Yield: 3.37%
Sector: Telecom
Country: Indonesia

7.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 5.92%
Sector: Banking
Country: Australia

8.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 5.13%
Sector: Banking
Country: Australia

9.Company: Telstra Corporation Ltd (TLSYY)
Current Dividend Yield: 5.92%
Sector:Telecom
Country: Australia

10.Company: DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 5.04%
Sector: Banking
Country: Singapore

Note: Dividend yields noted above are as of Dec 24, 2013. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Some investors tend to invest in equities primarily for price appreciation. They ignore dividends or consider dividends to be of low to no significance. However the strategy of ignoring dividends and concentrating purely on share price growth may not work all the time. This is especially true during times of economic uncertainty or recessions.

Dividends matter during both bull and bear markets. During bull markets dividends an extra kick to the total return while during bear markets they offer a cushion effect to a portfolio and provide at least some returns as opposed to no returns at all.

Dividends are a significant part of the total returns especially for high-quality stocks held for the long-term such as 5 years or more. The following chart shows the contribution of price appreciation and dividends to the total return of the S&P 500 since 1930 by decade:

Click to enlarge

Source: High Dividend Investing – East Side Story, Nikko Asset Management, Singapore

Dividends contributed more to total returns than capital appreciation during the following four decades: 1930-1939, 1940-1949, 1970-1979 and 2000-2009.  These four decades were periods of low or uncertain economic growth in the U.S.  The 1930s and 40s saw The Great Depression and World War II. The Oil Crisis of the 1970s adversely affected economic growth and more recently the crash of the dot-com bubble in the last decade killed stock prices and the negative effects lingered for many years that followed.

Even when we consider the bull markets of the 50s, 80s and 90s dividends were a significant portion of the total returns of the S&P 500. For example, in the period 1950-1959 dividends accounted for about 28% of total returns. During the 1990s when the dot-com stocks were all the rage, dividends contributed 15% of the total return of 18%.

Reinvestment of dividends can boost total returns significantly over the long-term due to the effect of dividend growth and compounding. The chart below shows the growth of $100 invested in an S&P 500 index tracker fund from Dec 31, 1987 to Dec 31, 2012 by price appreciation and reinvestment of dividends:

Based on purely price appreciation the $100 investment would have grown to $577 by the end of 2012. However it would grown to $1,007 had the dividends received over the years were reinvested. Hence the reinvested dividends boosted an investor’s return by 75%. This shows the importance of dividends and dividend reinvestment when evaluating the total return of an equity investment.

A few of the high-quality S&P 500 stocks that investors can consider holding for both share price growth and dividends are  Johnson & Johnson (JNJ), Colgate-Palmolive Co(CL), General Mills Inc (GIS), Northrop Grumman Corp (NOC) and FedEx Corp (FDX).

Related ETF:

• SPDR S&P Dividend ETF (SDY)

Disclosure: Long GIS

One of the ways to gain exposure to emerging markets is to invest in developed world companies that have a significant presence in emerging markets. Among the developed world companies, many large-cap European firms have big operations in emerging markets and derive a large portion of their revenue from those markets. Hence by investing in these European companies one can gain from the growth in emerging markets while avoiding the many risks of investing directly in emerging companies. Some of the risks associated with companies based in emerging markets include: lack of transparency, high state ownership or majority ownership by powerful wealthy families, lack of global diversification, etc.

In addition to emerging market exposure, large European firms also offer exposure to other developed Europe, USA, Rest of the world and of course their domestic markets. According to a recent article in The Economist magazine firms in the benchmark indices of the UK (FTSE 100), France (CAC 40) and Germany(DAX) generate less than a quarter of their sales from their home markets.

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Source:  Firms’ listings and geographic sales, The Economist

From The Economist article:

Less than a quarter of the sales of companies in Britain’s FTSE 100 index are in Britain, according to Capital Group, an asset-management firm. Emerging markets and America account for 30% and 19% of sales, respectively. Germany’s and France’s main stockmarket indices show a similar phenomenon. Only seven companies in the FTSE 100 have “complete exposure” to the British economy, the firm says.

British, French and German blue chip firms earn about similar percentage of sales relative to the total sales from the US market. However their revenue from emerging countries is much higher than from the US. It is interesting that firms in the S&P 500 index generate about 60% of their revenue from the domestic market and their revenue from emerging markets is lower than their European peers. Similar to the S&P 500 firms, major Japanese firms also depend on their home market for most of their revenue. Hence investors looking to diversify globally can consider adding blue chip British, French and German stocks.

Ten constituents in the FTSE 100, CAC 40 and DAX indices are listed below with their current dividend yields for consideration:

1.Company: Diageo PLC (DEO)
Current Dividend Yield: 2.35%
Sector: Beverages
Country: UK

2.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 4.80%
Sector: Pharmaceuticals
Country: UK

3.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 4.15%
Sector: Wireless Telcom
Country: UK

4.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.14%
Sector:Tobacco
Country: UK

5.Company: Total SA (TOT)
Current Dividend Yield: 4.39%
Sector:Oil, Gas & Consumable Fuels
Country: France

6.Company: Lafarge SA (LFRGY)
Current Dividend Yield: 1.75%
Sector:Construction Materials
Country: France

7.Company: Sanofi (SNY)
Current Dividend Yield: 2.93%
Sector: Pharmaceuticals
Country: France

8.Company: Danone SA (DANOY)
Current Dividend Yield: 2.73%
Sector:Food Products
Country: France

9.Company: BASF SE (BASFY)
Current Dividend Yield: 2.38%
Sector:Chemicals
Country: Germany

10.Company: Siemens AG (SI)
Current Dividend Yield: 2.23%
Sector:Industrial Conglomerates
Country: Germany

Note: Dividend yields noted are as of Dec 24, 2013. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions