31 Pan Asia Dividend Aristocrats

by: TIP Guy

Standard & Poor’s is a US based provider of financial market intelligence which includes ratings, investment research, risk evaluation and data, and various types of indices. Among multiple different indices with different focus areas, one index is the dividend aristocrat index.

The Dividend Aristocrats is an index which consists of S&P500 companies that have been raising dividends continuously for 25 years or more. That is, every year, the dividend per share keeps on increasing. If any company that reduces or cuts the dividend in any given year, it is removed from the index. Now this is the characteristics that can be viewed in multiple ways, but TIPBlog is about Indian investments. Therefore, I will not go into detailed discussion. But it gives the context for this posts further discussion.

In markets of Asia or other parts of the world, it has been difficult to find a single company that has consistently raised their dividends year after year. Outside the United States, there has been lack of consistency in the way corporations managed dividend strategy, or the way the government policies taxed dividends to companies and common shareholders.

With the continued growth of Asian markets, S&P has taken a plunge and has come up with the “Dividend Aristocrat Index” for Pan Asian companies. This index is called Pan Asia Dividend Aristocrat Index. The index construction has the following key points:

  • The S&P Pan Asia Dividend Aristocrats Index is designed to measure the performance of Asia Pacific companies that have followed a managed dividend policy of consistently increasing dividends every year for at least 7 consecutive years. The index is weighted by dividend yield with caps on single stock concentration.
  • Based on the back-testing, the Aristocrats index has had a higher return and lower volatility compared to the S&P Pan Asia BMI over the past 7 years.
  • Cumulative dividend yield of the Index yields has been in the range of 2.8% to 5.1%. In general, this is approximately 100 to 150 basis points above the overall market yield.
  • For 2009, the S&P Pan Asia Dividend Aristocrats Index includes 31 companies across 8 sectors and 7 countries. They have both growth and income characteristics.

Now comes the interesting part. The dividend contribution to total return of Pan Asia Aristocrats is very much similar to S&P Dividend Aristocrats. Chart 1 shows the contribution of dividends in total return. Almost one third of the total return comes from dividends. If I can recall correctly, perhaps this does not include dividend reinvestment [Dividend reinvestment needs validation].

Chart 1: PAN Asia Dividend Aristocrat - Dividend Contribution

Chart 1: PAN Asia Dividend Aristocrat - Dividend Contribution

Chart 2: List of Companies in S&P Pan Asia Dividend Aristocrat Index

Chart 2: List of Companies in S&P Pan Asia Dividend Aristocrat Index

The list of 31 companies is shown in Chart 2. What is interesting is 26 companies are from the developed economies of Japan, Australia, and Hong Kong. The emerging economy of China has only one company, while Taiwan and India have two companies each.

The two companies from India are Axis Bank and HDFC Bank (HDC), both are from financial sectors. I always knew HDFC Bank was a well managed organization; however, Axis Bank came out as a surprise to me.

In the next post, I will continue this discussion on some aspects of why there is such a disparity between emerging economies and developed economies. You may read the full report from S&P Pan Asia Dividend Aristocrat.

Full Disclosure: Long on HDFC Bank