While the gap between high dividend rates and bond yields has narrowed, it means that the advantages of high dividend rates are more prominent in a low interest rate environment. The high dividend yield deserves continued attention in the future for three reasons.
First of all, the stock market dividend rates in major countries around the world exceed the current long-term government bond yields, and the high dividends in the stock market have a certain appeal. From a global perspective, the British FTSE 100, the Australian S&P 200, the German DAX, and the Taiwan Weighted Index enjoy relatively high dividend rates, which are 3.25%, 2.65%, 2.56%, and 2.53% respectively. The yields on 10-year treasury bonds (government bonds) are 0%, 1.56%, -0.33% and 0.30% respectively, and the dividend rate significantly exceeds the yield on long-term treasury bonds; the same is true for the Dow Jones Index, Hang Seng Index, French CAC40, etc. Among the world's major indexes, only Brazil's IBOVESPA index, India's SENSEX30 index and Nasdaq index have dividend yields lower than government bond yields (Figure 1). The main reason is that Brazil and India are "high interest rate" countries. Therefore, from a global perspective, in a low interest rate environment, the current income from allocating high dividends will exceed that of allocating bonds, and funds can share the value created by corporate growth under low interest rates through dividends.
Secondly, the current overall dividend rate of A-shares is at a historically neutral level, and the scarcity of high-dividend assets in A-shares has increased. Judging from the performance of A-shares, the current A-share dividend rate (in the past 12 months) has continued to fall since February 2018. It is currently near the historical average of the past ten years, and the dividend rate level is neutral (Figure 2). This may be related to the expansion of the proportion of growth companies in recent years and the decline in the overall willingness of companies to pay dividends. Therefore, high-dividend assets are even more scarce, especially when the market tends to be weak and volatile, and high-dividend assets are even more important.
Third, the asset allocation direction of allocation funds tends to be in sectors with high dividend advantages. Currently, the industry sectors with high concentration of high dividends in A-shares are banking, coal and real estate. The dividend rates in the past 12 months were 4.13%, 4.09% and 3.78% respectively. They are also the only first-level industry sectors that exceed the 10-year government bond yield (3.26%) (Figure 3). Therefore, allocation funds will pay special attention to the performance of banks, coal and real estate, and increase the allocation proportion of high-quality assets in this sector. For example, as of the third quarterly report of 2020, the total allocation ratio of insurance funds in the three sectors of banking, coal and real estate was approximately 60.1%; while at the end of 2010, the allocation ratio of the three major sectors was only 26.3%, and the allocation ratio has increased significantly. In addition to the appeal of high dividends, the implementation of new accounting standards has also increased the demand for high dividend assets. According to the new accounting standards, starting from 2019, all A-share listed companies will need to implement the new accounting standards. For financial assets measured at fair value and changes included in other comprehensive income under the new standards, the fair value will no longer affect the income statement. Companies that previously held large amounts of equity assets may increase their allocation to high-dividend-yielding targets and classify them as financial assets measured at fair value and changes included in other comprehensive income to reduce the impact of the new standards on statement profits.
The main reasons for the formation of high-dividend assets include: On the one hand, the system encourages dividends. The "Opinions of the State Council on Further Improving the Quality of Listed Companies" issued in October 2019 proposed to encourage listed companies to repay investors through cash dividends, share repurchases, etc., and effectively fulfill their social responsibilities; the "14th Five-Year Plan" outline states that "increase the property income of urban and rural residents through multiple channels, improve farmers' The share ratio of land value-added income, improve the dividend system of listed companies, and innovate more financial products that meet the needs of family wealth management"; the new securities law officially implemented in March 2020 further clarifies that listed companies should clarify the specific arrangements and decision-making procedures for distributing cash dividends in their articles of association to protect shareholders' asset income rights in accordance with the law. If a listed company has a surplus in after-tax profits for the current year after making up for losses and withdrawing statutory reserve funds, it shall distribute cash dividends in accordance with the provisions of the company's articles of association. Therefore, from the perspective of institutional arrangements, the future A-share system will encourage companies to pay dividends, guide companies to pay cash dividends, and enrich the income channels for small and medium-sized shareholders.
On the other hand, many industries have entered a mature stage, the competitive landscape is relatively stable, and the willingness to pay high dividends has increased.The growth rate of capital expenditures of A-share companies in 2019 has declined compared with 2018. Part of the reason for this is that some A-share companies have become industry leaders and have ended their high-growth stage and entered a stable and mature stage. Their willingness to make capital expenditures has declined and their willingness to pay dividends has increased. From 2009 to 2019, we can see that the number and proportion of A-share companies with a dividend ratio of more than 30% has increased simultaneously. In 2019, the number of companies with a dividend ratio of more than 30% exceeded 1,600, accounting for nearly 35% (Figure 4). The 2020 annual report shows that this momentum has not weakened. As of April 6, 1,204 A-share listed companies have disclosed annual reports, and 1,042 plan to distribute cash dividends, with the amount of dividends exceeding one trillion yuan. Companies planning to pay dividends account for nearly 90% of listed companies that have disclosed annual reports; among them, 639 companies have cash dividends accounting for no less than 30% of their net profits, reaching 61.3% of dividend-paying companies.
