Dividend Payout Ratio Comparison: New Zealand vs. Global Indices

Investors hunting for income stocks should consider New Zealand. Dividend payout ratio in the country is one of the highest in the world. In 2015, the ratio was 84%. This figure leaves the 48% payout ratio of US firms in the S&P 500 in the dust.

Similar to Australia, New Zealand also has the policy of imputation on dividends. This simply means investors receive a tax credit for all or some of the taxes paid by a company. In the US and other countries, a company’s earnings are taxed twice – once when a company pays its taxes and then when an investor pays taxes on dividends received.

The dividend payout ratio of New Zealand vs. select major indices in 2015:

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dividend-payout-ratio-new-zealand-vs-other-indices

Source: Why a New Zealand Dividend Strategy Now?, Tianyin Cheng, Indexology

The importance of high dividend payout ratios can be confirmed by the total return of equities over the long term. This is because high dividend payouts should give a strong boost to total returns even when price appreciation is average or below normal. In the case of New Zealand, dividends reinvested accounted for about 60% of the total return of benchmark S&P/NZX 50 Index between Jan 3, 2001 and Aug 31, 2016. Another 18% was due to reinvestment of imputation.

sp-nz50-index-dividend-impact-on-growth

How invest in New Zealand stocks?

The simplest and easiest way for US investors to access NZ stocks is via the iShares MSCI New Zealand Investable Market Index Fund (ENZL).

None of the NZ stocks trade on the organized exchanges. But about 39 firms from the country trade on the OTC markets.

Disclosure: No Positions

Hong Kong Metro Map

The Mass Transit Railway (MTR) of Hong Kong covers  135 miles with 155 stations. It is one of the world’s profitable transit systems. The system is operated by MTR Corporation Limited. The company’s stock trades on the OTC market under the ticker MTRJY. Currently it has a market cap of over $32.0 billion.

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hong-kong-mtr-routemap-2016

Source: MTR

Download: Hong Kong Metro Map (in pdf)

Earlier: Shanghai Subway Map 2016

Professor John Ross: Fast-Growing India and China vs. Very Slow Growth Western Countries

The emerging economies of China and India are growing fast compared to developed economies. This year China and India grew at 6.7% in second quarter and  7.9% in first quarter respectively. GDP growth rates of high=single digits are for these economies are considered low by some relative to their higher growth rates in the past. Western economies have smaller growth rates than these figures.

According to Professor John Ross, a Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China the cause for this big difference in growth rates is state investment. Basically he argues that governments of China and India continue to invest heavily on infrastructure and other sectors has led to high growth while in the developed western countries the high dependence on private investment and very low state investment has created a low growth economic environment.

From a recent article by Professor Ross:

The world’s two most rapidly growing major economies are China and India. Both China and India show a common pattern of development which differs sharply from the slowly growing Western economies. China and India’s fast expanding economies have rapidly growing state investment while their private investment is either growing very slowly or declining. In contrast the slowly growing Western economies rely on private investment with no rapid growth of state investment. It will be shown below why rapid expansion of state investment is correlated with fast economic growth, while reliance on private investment leads to slow economic growth.

This economic reality highlights the importance of China’s dictum ‘seek truth from facts’. It is also crucial for China’s practical economic policy as it seeks to achieve its goal of a ‘moderately prosperous society’ by 2020 and a ‘high income economy’ by World Bank standards shortly thereafter.

But the facts of this global economic trend are also crucial for economic theory and analysis. According to the dogmas of ‘neo-liberalism’ and the ‘Washington Consensus’ private investment is supposed to be ‘good’ while state investment is supposed to be ‘bad’. The facts show the exact opposite trend is occurring. Rapidly rising state investment is associated with high economic growth (China and India): reliance solely on private investment is associated with low growth (US, EU and Japan).

Source: Why Are China and India Growing So Fast? State Investment, Key Trends in Globalisation

Below are three charts from the above article:

a) China – State vs Private Investment

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china-state-vs-private-investment

b) Per Capita GDP Growth – Year on Year

per-capita-gdp-growth-select-countries

c) GDP Per Capita

per-capita-gdp-change-since-2007-for-select-countries

Mr.Ross notes that US economic recovery is hindered due to the ideology of the state namely that “state=bad’ and “private=good”.

In the US it is not possible or necessary for the state to play a major role in the economy like in China. While policies can be set to drive solid economic growth and prosperity economic policies of the state has failed and has caused a situation where the middle-class is hollowed out and the poor becoming poorer. In summary, in China the state is sitting in the driver’s seat of a moving car while in the US and other western countries the state is a passenger sitting in the back leather seat playing video-games or enjoying the beautiful scenery….