5 Japanese ADRs With Strong Dividends

by: The Keating Letter

Everyone from Warren Buffett to Barron’s has come out in the past week to say that Japanese stocks are cheap and now is the time to buy. Heck, even Dr. Doom himself, Marc Faber, has come out and called Japanese stocks a “lifetime buying opportunity.” Most commentators are referring to Japanese small cap stocks - and not necessarily large cap and more international-focused Japanese companies - as being especially cheap. A lot of money has flowed into Japanese ETFs lately, and that’s not necessarily the best bet.

If you’re too afraid to look at Japanese small caps, or if you trade through a discount broker and don’t have the ability to buy shares on the Nikkei, you should look at American Depository Receipts (ADRs) for Japanese companies. An ADR trades just like a stock on an American exchange and represents ownership in the actual shares. They’re an easy way to get access to foreign stocks, although most will be larger companies. I recently created a list of the 21 Japanese stocks that trade as ADRS on the New York Stock Exchange and NASDAQ. You can find those 21 stocks here.

Out of those 21 ADRs, I’ve chosen five who are strong dividend payers who likely won’t be affected over the long term by the disaster. If you want to get exposure to Japan, but don’t want to take on the risk of small caps and don’t want to simply buy an ETF, these five stocks may be interesting picks for you. Their dividends are safe, and if there is another leg down in the market, their yields should help to protect the share price. Plus, if the stock market recovery takes longer than expected, at least you’ll be making some income from the dividend while waiting it out.

  1. Nippon Telegraph & Telephone (NYSE:NTT): NTT sports a strong 3.1% dividend yield. Shares were above $25 in early March before the earthquake and tsunami, but currently sit in the low $23s. NTT is a bit like the old ATT of Japan and offers fixed line telecommunications services. They also own 57% of NTT DoCoMo (NYSE:DCM), which is a mobile operator. I won’t break DCM out separately here, but they have a 3.4% dividend yield.
  2. Mitsubishi UFJ Financial (NYSE:MTU): MTU is a Japanese financial institution. With the Bank of Japan providing liquidity to the economy, MTU is a safe bet to continue its 2.9% dividend. In fact, before the earthquake hit, MTU was one of the stocks Marc Faber specifically mentioned as being attractive. Shares are trading off 13% since before the disaster.
  3. Konami Corp. (NYSE:KNM): KNM is a video game software developer and should not be significantly affected. Think of games like Dance Dance Revolution and Metal Gear Solid. Shares are yielding 2.0% right now and the stock price is down about 13% from early March.
  4. Kubota Corp. (KUB): KUB is a little different from the others because it’s a manufacturer. They will probably see high demand for their machinery and other industrial products, but like other Japanese manufacturers, there will be uncertainty about production costs and reliability. Because of potential demand, shares have already recovered to early March levels and are yielding 1.7%.
  5. Wacoal Holdings (NASDAQ:WACLY): WACLY is a smaller company with a market cap of only $1.8 billion. Shares are down about 5% from early March. WACLY has a dividend yield of 1.7%. The company is like a Japanese version of Victoria’s Secret, only it also sells some kids and men’s clothes. WACLY has a strong balance sheet and steadily growing revenue over the past decade.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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