Asia's budding dividend zeal needs more support

While US and European companies have reduced their average dividend payouts over the past decade, Asian corporates have maintained consistent payout ratios, reflecting the region's improving balance sheets, shifting investor preferences and increasingly supportive regulatory environment.

- Manishi Raychaudhuri

To maximise shareholder value, economic theory argues that excess cash should be distributed to shareholders. Companies do this through dividends or share buybacks.

Asian companies pay more dividends than their US peers, who typically prefer share buybacks, but less than Europeans. Asia’s average dividend payout ratio was 40% in 2024, compared to 31% for S&P 500 companies and 48% for Eurostoxx 50 companies, according to Factset.

Asian companies were not always in the middle of the dividend rankings. Asia recorded the lowest dividend payouts of the three regions only a decade ago, when European companies sent more than 60% of their profits back to shareholders and Americans disbursed 40%.

The decline in the US is largely because corporates have increasingly jumped on the buyback bandwagon, despite a modest jump in dividend payouts in 2019-2020. Meanwhile, in Europe, firms have increasingly preferred to retain more capital, largely due to uncertainties created by rising competition from Asian imports.

Dividend payouts in Asia, on the other hand, have benefited from investor preference for high dividend-yielding stocks and regulatory pushes.

CASH IS KING

Reflecting the maxim that in uncertain times cash is king, Asian investors have shown a strong preference for dividend-paying companies in the volatile period since 2020.

The MSCI Asia ex Japan High Dividend Yield Index has generated total returns that are more than double those of the MSCI Asia ex Japan index over the past five years.