Asian companies pose lower dividend risk due to stronger finances

By Patturaja Murugaboopathy

(Reuters) - Asian firms appear better equipped to pay stable dividends compared with their western counterparts that are constrained by highly levered balance-sheets and a need to preserve cash during the coronavirus outbreak.

As major global central banks push interest rates to near-zero, yield-seeking investors are on the hunt for assets that provide a stable income.

Analysts say that while Asian companies are also pressured by factory shutdowns and falling demand this year, their higher cash flows could help to sustain dividend payments.

"We note that companies in Asia appear to have much more insulation in terms of sustainability of cash outflow items such as capital expenditure and dividends relative to their Western counterparts," Jim McCafferty, head of Asia-ex-Japan equity research at Nomura in Hong Kong, said in a note.

"We believe this conservatism has roots in the fact that Asia has experienced more crises than the West in recent years."

Nearly 70 of the top 600 listed companies in Europe cut or suspended dividends between Feb. 24 and March 31, a Reuters analysis found, while 18 of the top 100 London-listed companies have cut or delayed theirs.

Last week, Goldman Sachs said it expects S&P 500 dividends to fall by 25% in 2020 as certain large dividend-paying industries are particularly vulnerable to the economic shock of the coronavirus outbreak.

However, analysts' downgrades over the past month of Asian companies' dividend payments are modest compared to those of other regions, Refinitiv data showed.

(GRAPHIC: Mean change in dividend estimates - https://fingfx.thomsonreuters.com/gfx/mkt/bdwpkznxvmn/mean%20estimate%20change.JPG)

Sean Darby, global equity strategist at Jefferies, said China's Hong Kong-listed H-shares, or government-linked companies, which aren't in commodities businesses provide an interesting hedge for investors since they are likely to receive favourable bank credit while having large domestic franchises.

Companies such as China Mobile <0941.HK>, China's toll road firms and insurance companies offer secured dividends on decent valuations, he said.

"We think they are unlikely to be cut since the Chinese government is running a record large budget deficit and needs sources of revenue to fill the gap," he said.

China Mobile, in fact, pledged last month to keep its dividend stable for 2020.

According to a Nomura analysis, only 18% of the top 100 non-financial U.S. companies were net cash, with cash levels exceeding debt, while the ratio for the UK was 21%.

(GRAPHIC: Comparison of net cash levels - https://fingfx.thomsonreuters.com/gfx/mkt/xklvynowpgd/nomura%20graphic.JPG)

On the other hand, 48% of Chinese/HK firms and 50% of Japanese firms were net cash firms, the data showed.

Dividend yields of firms in Australia, Hong Kong and Singapore are among the highest in the world, Refinitiv data showed.

(GRAPHIC: Forward dividend yields - https://fingfx.thomsonreuters.com/gfx/mkt/qzjvqygxvxm/forward%20dividend%20yield.JPG)

Asia-Pacific has the highest free cash-flow yield, a ratio that measures the cash a company generates to meet debt, dividend and other obligations, the data showed, suggesting these companies will keep enough buffers to cater to yield-seeking investors.

(GRAPHIC: Free cashflow yields - https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjnwgvrz/fcf.JPG)

(GRAPHIC: Comparison of dividend yields - https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmarnvra/comparison.JPG)

(Reporting By Patturaja Murugaboopathy; Additional Reporting by Gaurav Dogra; Editing by Vidya Ranganathan and Muralikumar Anantharaman)

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