Japan: Land of the Rising Payouts (NIKOY)

| About: Nikko Cordial (NIKOY)

Last August, I posted about Nikko Cordial (OTC:NIKOY) boosting its dividend payout and its plans to begin paying dividends quarterly in fiscal 2006. The "Heard in Asia" column in Monday's Wall Street Journal Asia discusses this trend in broad terms:

Some Japanese companies soon will be sharing their riches with investors more frequently, which could make them more attractive to buyers and possibly boost their stock prices.

The cue is Japan's Corporate Law, which took effect yesterday and grants companies freedom to set the timing and frequency of their dividend payments. There are signs that some companies will start paying dividends every quarter, a practice common in the U.S. and Europe. Until now, Japanese companies have been allowed to pay dividends just twice a year.

This comes a bit further down:

"Japan, for such a long time, had the lowest dividend yield and dividend-payout ratio" among major markets, points out Patrick Mohr, a strategist at Nikko Citigroup in Tokyo. "That is beginning to change." Mr. Mohr forecasts that Japan's publicly traded companies will make a record 5.5 trillion yen, or $48 billion, in dividend payouts for their performances for the year that ended March 31. For the year ended March 2005, dividend payouts came to 4.6 trillion yen, and payments totaled 3.7 trillion yen a year earlier.

Higher dividends are among a number of shareholder-friendly steps that Japanese companies have begun taking in recent years. One big reason is a change in Japan's shareholder base. During the country's long economic slump, banks and other strategic corporate shareholders needing to raise cash sold off large chunks of the stock holdings they had in their business partners.

Then this, which I've bolded for emphasis:

To appeal to new types of shareholders and fend off hostile takeovers, companies have adopted other measures, such as share buybacks, improved disclosure and better governance. These moves encouraged foreigners and individual investors to buy shares and fill the gap left by corporate shareholders.

Of course, before we get carried away we need to realize we're still early in this trend. Payouts by Japanese companies still lag those of other countries. But my guess is -- no surprise -- they'll continue growing. The increasing dividend payouts will (are) attracting foreign investors and Japan's population is aging. Many are now in retirement and more will be in years to come. Retirees who are also shareholders will like the idea of more payouts, too.

[Disclosure: Author is long shares of NIKOY.]