Alphabet’s dividend? Asian tech giants were there first

Yoojeong Oh and Eric Chan, managers of abrdn Asian Income Fund

In April this year, amid some fanfare, technology giant Alphabet paid its first dividend. It may have been just $0.20 per share, but it was taken as a sign of a new era for the technology sector. 

In reality, Asian companies were already there. Technology behemoths such as TenCent, Samsung and TSMC had already built a robust history of payouts to shareholders. 

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The potential growth for Asia’s technology sector is every bit as compelling as its US equivalent, but unlike the US tech giants, it is a natural option for income investors. TenCent has been paying a dividend since 2004 and has doubled its payout ratio (from 11% to 25%) over the past 12 months. TSMC - our largest holding on the abrdn Asian Income Fund - has a relatively low starting yield but has been paying a rising Dollar dividend per share every year for the past five years. 

These companies have, to some extent, been a bellwether for a broader change in corporate Asia, one that US companies are only just waking up to. We see this across the region, with cash-generative Asian companies returning profits to shareholders via dividends. Around 40% of the companies in the Asia Pacific ex Japan benchmark are now yielding more than 3%. 

Sharing earnings with shareholders

When we talk to management teams on the ground in the region, it is clear they recognise that to attract foreign capital into their equity register, they need to share their earnings with shareholders. This is part of a wider improvement in governance and strong focus on delivering shareholder value.

These initiatives have been encouraged by government initiatives. The Chinese government, for example, enacted a series of measures in 2023, changing the way it evaluates the performance of managers at state-owned entities from net profits to return on equity. The Korean government has also launched a ‘value up’ initiative designed to address the ‘Korea discount’ in a number of its stocks. In some cases, the execution of these initiatives has been flawed but it is, at least, an important statement of intent. 

This ensures that a dividend investor in Asia has a breadth of choice. It is possible to generate dividends from technology hardware plugged into the AI trend, or from infrastructure companies with a stake in the energy transition. Consumer companies are benefiting from a new middle class, with rising wealth, while the financial sector is helping people preserve that wealth through savings and insurance products. In Asia, dividend investors are not limited to dull, low-growth areas such as energy and mining, but can access a range of opportunities. 

Asia’s rapid growth

This diversity is just one of the reasons to look to the Asian market for dividends. Economic growth is also important. Asia is now the most important growth engine for the global economy. It is forecast to deliver around half of the world’s economic growth in 2025, creating a fertile environment for companies to grow their dividends and share prices.

The IMF forecasts growth of 4.5% for Asia for 2024, and another 4.3% in 2025. This is more than double the projections for advanced economies (1.6% and 1.8% respectively). It is also higher than every other region, and all other emerging market areas. Perhaps more importantly, that growth comes without an inflationary sting in the tail. 

In achieving these levels of growth, Asia has some clear advantages. It has demographic tailwinds, with young, urbanising populations in countries such as India and Indonesia. A growing, educated middle class is increasingly driving growth and economic opportunity across the region. 

The elephant in the room

The problems in China have been a significant deterrent for many investors in Asia. In general, equity income investors, including ourselves, have held relatively little in China, because there isn’t the same dividend opportunity there. That said, this is changing over time, and there have been some opportunities that have been difficult to ignore. We remain cautious and selective, but the outlook for the Chinese economy is improving and there are some fast-growing, well-run companies now trading on attractive valuations. 

For example, TenCent not only improved its dividend policy, but started to trade at a much more digestible valuation. Fuyao Glass makes the windshields for cars, including EVs and that has fallen into our price range. Inner Mongolia Yili Industrial Group makes dairy products and is seeing strong demand. 

Many of the political risks that existed at the start of year have passed. The biggest risks are now likely to come from outside. The US election will have an impact in the region, with a new president potentially making changes to trade policy or sanctions with China. 

There will be repercussions across Asia, both good and bad. There are markets that could benefit should there be stricter policy against China – Malaysia, for example, is attracting a greater share of global manufacturing, as are Vietnam and Thailand. Korea could benefit if there’s a squeeze in Taiwan. These are all risks that we keep a close watch over.

In the meantime, the opportunity set for income investors in Asia continues to expand. Our local analyst teams and broad network in the region allows us to uncover those opportunities wherever they occur, creating a portfolio with potential to deliver a growing income, but also long-term growth.  

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

Important information 

Risk factors you should consider prior to investing: 

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• The Company may charge expenses to capital which may erode the capital value of the investment.
• Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
• Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher-than-average risk of loss.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.

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