What are we looking for?
Sustainable dividends from Japanese companies set to increase with the country’s rising stock market.
The screen
Shares of Japan’s Honda Motor Co. Ltd. (ADR) and Nissan Motor Co. Ltd. (ADR) jumped late last month on merger talks. Such a tie-up would see those industry stalwarts better compete in the race to expand electric vehicle offerings and so protect market share against low-cost Chinese rivals.
A stronger outlook for Japanese auto manufacturers also bodes well for the country’s Nikkei Stock Average, which has already regained the ground it lost with the August, 2024, market slump.
More generally, the weak yen continues to spur profits for Japanese exporters while lifting their appeal with international investors. Canadian investors have easy access to Japanese stocks through American Depository Receipts (ADRs) traded on the New York Stock Exchange. ADRs let you hold the same shares traded on the Tokyo exchange.
Here we’re searching for profitable Japanese companies offering ADRs and with strong growth prospects. From there, we use our TSI Dividend Sustainability Rating System to pinpoint stocks providing the most dependable income for investors. The rating system awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five
- Two points if it has raised the payment in the past five years
- One point for management’s commitment to dividends
- One point for operating in non-cyclical industries
- One point for limited exposure to foreign currency rates and freedom from political interference
- Two points for a strong balance sheet, including manageable debt and adequate cash
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments
- One point for being an industry leader
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six Japanese ADRs ready to move even higher, while adding to their dividends. Toyota Motor Corp. TM-N and Honda Motor Co. Ltd. HMC-N remain Japan’s two biggest auto exporters. Canon Inc. CAJPY-OTC remains one of the country’s top tech manufacturers, with the low yen only bolstering sales. Nippon Telegraph & Telephone Corp. NTTYY-OTC is the leading integrated telecommunications operator in Japan. Meanwhile, Japan’s largest bank, Mitsubishi UFJ Financial Group Inc. MUFG-N, continues to benefit from increased lending, as well as higher fees and commissions from the country’s soaring stock market. And finally, global financial-services giant Orix Corp. IX-N keeps profiting from its range of operations in banking, insurance, real estate and private equity.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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