In his latest Globe & Mail article, TSI’s Scott Clayton uncovers six dividend-paying powerhouses from Japan’s leading sectors, all poised for growth. These companies span from automotive manufacturing to financial services, with their prospects brightened by the weak yen and potential industry consolidation. Our rigorous TSI Dividend Sustainability Rating System indicates these ADRs aren’t just maintaining their position but are strategically positioned for significant expansion, particularly as merger talks energize the automotive sector.
Our analysis, as featured in the Globe & Mail, suggests that as the weak yen is helping reshape the competitive landscape, these high-yield Japanese stocks present compelling opportunities.
Excerpt from the globeandmail.com, January 17, 2025
What are we looking for?
Sustainable dividends from Japanese companies set to move even higher 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. Note – 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 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.
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. (with a 2.5% yield) and Honda Motor Co. Ltd. (3.6%) remain Japan’s two biggest auto exporters.
Canon Inc. (2.6%) continues to be one of the country’s top tech manufacturers, with the low yen only bolstering sales.
Nippon Telegraph & Telephone Corp. (2.6%) is the leading integrated telecommunications operator in Japan.
Mitsubishi UFJ Financial Group Inc. (2.3%), Japan’s largest bank, continues to benefit from increased lending – as well as higher fees and commissions from the country’s soaring stock market.
Orix Corp. (3.3%), a global financial-services giant, keeps profiting from its range of operations in banking, insurance, real estate and private equity.
