Chinese banks and state-owned firms bright spot as dividend payouts slashed around the world
- Chinese state-backed groups are raising dividend payouts, even as US and European firms conserve cash
- China Mobile, China Merchants Bank boost 2019 full-year dividend payments; Ping An Bank raises 2020 dividend
Chinese state-backed companies’ have stepped up dividend payouts in sharp contrast to companies in Europe and the US who are hoarding cash to see them through the coronavirus pandemic. This relative largesse has attracted the attention of yield-seeking investors.
Beijing’s long-term push to attract institutional investors is paying dividends this year as many state-owned enterprises (SOEs) maintain, or even raise their payouts, fund managers said.
Even as the world’s second-largest economy suffered its first quarterly contraction since 1992, fund managers said they are snapping up Chinese stocks in the telecoms, banking and energy sectors for their generous dividend payouts.
“Big dividend payers tend to include the largest SOEs, which are often financial firms, energy producers and real estate developers with cyclical profits,” said Catherine Yeung, an investment director at Fidelity International based in Hong Kong.
State-owned China Mobile bumped up its 2019 full-year dividend payment by about 1 per cent year-on-year despite a 9.5 per cent fall in net profits. Among financial stocks, China Merchants Bank, raised its dividend payout to 33 per cent from 30 per cent. Ping An Bank said in its 2019 results announcement that it plans to pay out not less than 40 per cent of its profit in 2020, up from a previously set range of 10-30 per cent. Chinese banks have either state-backed or central bank-backed shareholders.
Investors globally have pushed companies into hefty payouts in the form of dividends or share buy-backs over the past decade – dividends totalled nearly US$300 billion worldwide in the fourth quarter alone.
In the question of “Who takes the hit?” US and European companies are answering “investors” and funnelling cash to employees, vendors or bolstering their capital buffers to avoid having to petition the government for bailout cash.
In sharp contrast, Chinese banks, on average, pay out a third of their earnings as dividends. Their dividend policies are unlikely to change as the economy slows, said David Chao, Invesco’s global market strategist for Asia-Pacific based in Hong Kong.
While smaller banks with falling profits might not raise dividends, the threat of a blanket order from Chinese regulators to withhold dividends is unlikely, he said.
“As long as you have the state and provincial governments as the major shareholders in these companies, they would continue paying dividends to boost their shareholders’ cash balances, especially given uncertain times like this,” said Chao.
Outside banks, China Shenhua Coal, the listed flagship of state-owned coal giant Shenhua Group, increased its 2019 payout ratio to 60 per cent from 40 per cent, while pledging a floor of 50 per cent for both 2020 and 2021. It is trading at a 12-month multiple of 6.82 times.
State-backed property developer China Overseas Land and Investment also in April proposed a 13.3 per cent year-on-year increase in final dividend, outpacing its 10.3 per cent year-on-year increase in full-year net profit.
Regulators are unlikely to let up the pressure on listed companies to increase shareholder returns any time soon.
Beijing is keen to see greater inclusion of China A shares into global indexes such as the MSCI suite. One way is to enforce investors’ right to share corporate profits.
In 2018, the China Securities and Regulatory Commission revised the country’s corporate governance code, which calls for full disclosure of companies’ dividend policies, including disclosure on reasons for withholding dividend payment.
There are still opportunities in some higher-yielding Chinese stocks said fund managers.
Despite an attractive dividend payout, China Mobile is still trading at a relatively low 12-month forward price-to-earnings multiple at 10.78 times compared with e-commerce giant Alibaba Group’s 27.18 times earnings, and social media giant Tencent’s 32.24 times earnings.
“China Mobile’s multiple is one of the cheapest in the global telecoms sector, which is underinvested by investors. Despite its attractive valuations, investors have overplayed their concerns about its 5G capital expenditure,” said Yeung.
China Mobile’s full-year payout ratio stands at 56.08 per cent. In indicated dividend yield terms, which compares its most recent dividend on an annualised basis to its current share price, it stands at 5.2 per cent. The stock has lost 4.1 per cent for the year through April 20.
Chao said mainland investors have recently upped their buying of Chinese banks listed in Hong Kong through the southbound stock connect trading scheme, given many of them have steady dividend payouts and are trading at attractive discounts to their mainland counterparts.
According to stock connect data on Hong Kong stock exchange’s website, in March there were strong net inflows into China Construction Bank, totalling HK$29.5 billion. Industrial and Commercial Bank of China, which is the world’s largest listed bank by assets, drew net inflows of HK$9.2 million.
“We expect the strong southbound flow into financial and banking stocks in Hong Kong to continue,” he said.
