TOKYO -- As a stronger yen threatens to soften corporate profits, market players are turning their eyes toward dividends per share, rewarding companies that signal an unflinching commitment to boosting investor returns.
The Nikkei Stock Average declined 1.4% to close at 23,291 Tuesday, extending its losing streak to five sessions. Brokerages were among the casualties, with Nomura Holdings dropping 1.4% and Daiwa Securities Group off by 1.6%.
But Matsui Securities bucked the trend, climbing 0.8% to hit a new high for the span going back to January 2017. The dividend payout ratio for the online brokerage, which released its quarterly earnings Monday, comes out to a projected 96% for the fiscal second half, compared with 78% in the interim half.
The second-half number is more generous than the 80% average forecast by analysts for the full year. JPMorgan Securities Japan raised the target share price for Matsui Securities to 1,100 yen from 1,000 yen.
The Nikkei average broke above 24,000 on Jan. 23 on the back of record-breaking earnings per share. That metric stands at 1,525 yen as of Monday. But the strengthening yen is making more companies cautious about earnings prospects.
As the bullishness recedes, investors are paying attention to per-share dividends. At the end of 1997, Nikkei average components shelled out an average of 91 yen per share, according to data crunched by Asset Management One. That figure had quadrupled to 364 yen at the end of 2017.
Sho-Bond Holdings plans to boost its payout ratio to 50% by the fiscal year ending June 2021. The general contractor's stock has soared 11% so far this year, compared with the Nikkei average's 2% gain over the same period. On Tuesday, the company surged during afternoon trading and finished 2% higher.
Dividend hikes are exciting the market because companies are appearing to be taking corporate governance reforms seriously. Companies listed on the Tokyo Stock Exchange paid out an average of 49% of their net profit in dividends during the fiscal year ended March 2013, but that figure climbed to 59% in fiscal 2016, according to Yohei Miura, an expert in Japanese and U.S. equities. This compares favorably with the 57% found at America's S&P 500 index.
"The trend of returning unused money to shareholders will become stronger still," added Miura.
Jeffrey Gundlach, the American fund guru known as the "bond king," predicts that the yield on the 10-year U.S. Treasury note will accelerate higher once the rate tops 2.63%. On Monday, the benchmark broke the 2.7% barrier, alarming investors.
Higher interest rates usually take the shine off dividend stocks. Yet investor money is still flowing to companies seen as devoted to generous payouts.
"Investors who believe the interest rate rise will be temporary are investing defensively," explained Takeshi Kamoshita, fund manager at Asset Management One.
During the first half of this fiscal year, Japan Post Insurance allocated 50 billion yen to Japanese equities, mainly those earning high dividends. "For the second half, we wish to invest with a focus on the rate of increase for dividends rather than on gains stemming from higher stock prices," said Atsushi Tachibana, a managing executive officer for the provider.
International investors are also taking the same tack. Global stock funds focused on dividends are assigning approximately 5% of their portfolios to Japanese equities, up from 2%-plus at the end of 2014, data from Mitsubishi UFJ Morgan Stanley Securities shows.
"Japanese stocks have begun to enter the list of investment candidates among foreign investors who focus on dividend growth," said Chisato Haganuma, chief equity strategist at the brokerage.