Investors should head east for income growth

published 2 July 2019

"It isn't just the sun that rises in the east", says Ian Cowie in The Sunday Times. Dividend payouts are also on the up. Asia was once characterised by stingy yields, says Daniel Leussink on Reuters. Yet the median percentage of company earnings paid out in dividends rose to 33% in Asia-Pacific at the end of last year, comparable to the 34% ratio in the US and above Europe's 27%.

Many companies in Asia have become more mature, so cash generation and distributions are on the rise, Mike Kerley of the Henderson Far East Income trust told Cowie. Dividend payments in the region have grown by 221% over the past decade, far greater than the global average of 120% and Britain's 89%. The top contributors to that growth have been South Korea, China and Singapore, adds Tom Bailey in Money Observer.

Volatile markets and the trade war mean that investors may not be able to count on capital growth, but that is less important than many think. As David Brett points out in City A.M., £1,000 invested in the FTSE 100 at the turn of the millennium would have returned just £204 by the end of 2017. But with dividends reinvested the total return would have been £1,193. That underlines the crucial role of dividend re-investment in driving long-term gains. Two Asian income trusts worth researching are Schroder Oriental Income (LSE: SOI) and Henderson Far East (LSE: HFEL).

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.