Chinese companies aren't necessarily among those you think of when looking for income-yielding stocks but, last year, one made the single largest dividend payment in the world.
China Mobile, in a grand gesture to mark the 20th anniversary of its Hong Kong listing, made a special one-off payment of $8.4bn, accounting for three-quarters of the Hong Kong total in the third quarter.
This was quite a departure from the norm. The company has a very low payout ratio, considering it generates so much cash, but it could bode well for the future.
So, as we begin the Chinese New Year of the Dog, will the country's dividends become the investor's new best friend?
If the past three years are anything to go by, the answer would be no.
According to the Janus Henderson Global Dividend Index, China has experienced three consecutive years of dividend declines.
A number of the long-established and generally family-controlled companies in Hong Kong are taking dividends more seriously now as a key part of shareholder return.Matthew Dobbs, manager of the Schroder Oriental Income fund, is cautiously optimistic, however. He says that the attitude to dividends is variable in China, given the influence of the government on state-owned enterprises and that many private companies are more focused on growth.
However, there are selective opportunities and he would expect them to evolve further in the future.
A number of the long-established and generally family-controlled companies in Hong Kong are taking dividends more seriously now as a key part of shareholder return, partly due to generation change and also reflecting the fact that many now have very strong balance sheets.
Launched in 2005, the Schroder Oriental Income fund is an investment trust that invests across Asia (excluding Japan, but including Australia and New Zealand).
Mr Dobbs looks for companies that offer attractive yields and growing dividend payments. His investment process and philosophy is consistent across the various funds and trusts he runs.
He believes long-term returns are driven by valuation considerations, but he is willing to exploit other opportunities if the investment case is strong enough.
Ideas are sourced from Schroders' huge regional analyst team, brokers and Mr Dobbs himself. He then invests in the best 60 to 80 non-consensus ideas.
He will also consider other, more qualitative factors, such as barriers to entry and strength of management.
The maximum gearing allowed is 25 per cent and Mr Dobbs has a revolving multi-currency credit line of £50m at his disposal.
However, the gearing has been around 6 per cent for a number of years now, as he will only borrow if he sees an exceptional investment opportunity.
At the moment, according to the January 2018 fund factsheet, he has around 25 per cent of the trust's portfolio invested in Hong Kong listed companies – including China Mobile – and a further 12 per cent in stocks listed in China.
Australian, Singaporean and Taiwanese companies make up most of the remainder of the portfolio.
He is broadly positive about Asian equities in 2018 as company fundamentals are positive, the operating environment is good and the economies are generally in a healthier state.
Free cashflow has also been rising sharply across the region, as capital spending remains generally disciplined, underpinning healthy dividend growth.
When I saw him late last year he said that, as has been the case for quite a few years now, China is the obvious question mark hanging over the region. But the problems are well known and he doesn’t think this will be the year it all falls apart.
Over the past year, the trust has lagged the wider market, largely due to the fact that many of the gains in the region have come from large-cap internet stocks, which are not suitable for the trust's mandate – they have minimal, if any, dividend yield (investors wanting access to these growth opportunities could consider Mr Dobbs's Schroder Asian Alpha Plus fund instead).
However, for investors seeking a less volatile way of investing in Asia and/or to diversify their income portfolio, I think this trust is worth a look.
At the time of writing it is trading at a very slight discount of 0.2 per cent - slap bang in the middle of its -5 per cent to 5 per cent range over the past decade.
Darius McDermott is managing director at FundCalibre
