In the 2007 financial year, 70 of the companies in Japans Topix 100 index raised dividends, 23 despite falling earnings. Of the rest, 23 maintained dividend payments and only 3 cut them.
The news will encourage investors in Japanese stocks, who in recent months have had to deal with a steadily declining Nikkei index and fears about a stalling economy. It also comes at a critical time in the debate about corporate governance in Japan, with the long-running dispute between hedge fund TCI and utility Electric Power Development (J-power) reaching a new level of intensity in late May when J-power issued a letter complaining that TCIs calls for increased dividends were selfish and damaging to the utilitys long-term investment plans. The story has dominated headlines in Japan and become the focal point for a heated debate over foreign investment and corporate governance. However, away from this charged issue there are signs that Japans companies are quietly improving in their attitudes towards investors.
John Vail, senior managing director at Nikko Asset Management, points out that dividend payments have often been the first cuts made by companies in Japan when faced with the prospect of falling earnings. He says: "We have been openly optimistic on dividends, and yet are greatly surprised by the recent progress that has been made. Along with the record amount of buybacks, we call it "Show Me the Money Corporate Governance", which is the medicine for poison pills.
Recent weeks have been especially promising, with the estimated dividend paid by the Topix for financial year 2008 increasing by 8% to a payout ratio of 26%, closing in on the US figure of 30%.