Investors seek better yields from Japanese bank stocks
As Japan's sovereign bond yields languish near zero, the regular payouts to shareholders of the nation's megabanks are appealing to a wider group of investors.
The average dividend yield of the Topix Banks Index, the payout relative to the share price, was at 2.22 per cent on Thursday. That's a 1.88 percentage point premium over the 10-year Japanese government bond yield, which touched a record low of 0.195 percent in January. The average indicated dividend yield for the three biggest banks was 2.8 per cent.
"If you're looking for yields, there are better opportunities in some stocks than in bonds," said Koichi Kurose, who oversees the equivalent of US$50 billion as Tokyo-based chief market strategist at Resona Bank. "Bank shares move similarly to bonds and their dividends are quite high, so it's better to invest in those."
Japan's bank stocks have rallied along with government bonds, with Mitsubishi UFJ Financial gaining 30 per cent in a year, as the central bank's unprecedented debt-buying measures pumped financial markets with surplus cash. While lower long-term interest rates implied narrower profit margins on lending and flat earnings in the next couple of years, stable dividends would make megabank shares trade like "quasi-utilities", Macquarie analysts wrote in a report last month.
The Bank of Japan's stimulus programme, which involves buying as much as 12 trillion yen (HK$780.4 billion) of domestic government notes a month, has eroded investment returns on Japanese government bonds.
Japan's sovereign debt has earned 3.8 per cent since April 2013, when the Bank of Japan began its easing policy. That compares with the 23 per cent return including reinvested dividends for the banking share gauge, and 45 per cent for the Topix index, Japan's broadest measure of equities.
Mitsubishi UFJ, Sumitomo Mitsui Financial and Mizuho Financial, the country's three biggest banks, all raised their annual dividend forecasts this year.
"Capital ratios are looking increasingly comfortable and even flat earnings should imply stable dividends at worst," according to the Macquarie analysts.
"While we do not expect the larger Japanese banks to increase dividend payout ratios radically over the next couple of years, we see some positive evolution in capital management," they wrote in the report.
