Asia’s budding dividend zeal needs more support to flourish: Raychaudhuri

While U.S. and European companies have reduced their average dividend payouts over the past decade, Asian corporates have maintained consistent payout ratios, reflecting the region’s improving balance sheets, shifting investor preferences and increasingly supportive regulatory environment.

To maximize shareholder value, economic theory argues that excess cash should be distributed to shareholders. Companies do this through dividends or share buybacks.

Asian companies pay more dividends than their U.S. peers, who typically prefer share buybacks, but less than Europeans. Asia’s average dividend payout ratio was 40% in 2024, compared to 31% for S&P 500 companies and 48% for Eurostoxx 50 companies, according to Factset.

Asian companies were not always in the middle of the dividend rankings. Asia recorded the lowest dividend payouts of the three regions only a decade ago, when European companies sent more than 60% of their profits back to shareholders and Americans disbursed 40%.

The decline in the U.S. is largely because corporates have increasingly jumped on the buyback bandwagon, despite a modest jump in dividend payouts in 2019-2020. Meanwhile, in Europe, firms have increasingly preferred to retain more capital, largely due to uncertainties created by rising competition from Asian imports.

Dividend payouts in Asia, on the other hand, have benefited from investor preference for high dividend-yielding stocks and regulatory pushes.

CASH IS KING

Reflecting the maxim that in uncertain times cash is king, Asian investors have shown a strong preference for dividend-paying companies in the volatile period since 2020.

The MSCI Asia ex Japan High Dividend Yield Index has generated total returns that are more than double those of the MSCI Asia ex Japan index over the past five years. This gap has shrunk in the first half of 2025 due to strong performance among low-dividend yielding sectors such as China internet platforms and Korean tech, but demand for dividends will likely get a boost if interest rates continue to decline in many major Asian markets.

REGULATORY PUSH

If investors are indirectly pushing Asian companies to distribute more cash, regulators’ approach is more direct, with officials in China, Japan and Korea at the forefront of this effort, though the results have been mixed.

In January 2023, SASAC, the Chinese state-owned company regulator, announced a shift in the key performance indicator used for evaluating state-owned enterprises, replacing net earnings with Return on Equity (ROE). A company can enhance its ROE by distributing excess cash and thus reducing the size of its balance sheet, a course of action that most of the SOEs took.

On top of this, the Chinese securities regulator CSRC in August 2023 restricted controlling shareholders of listed companies from selling shares in the secondary market if the company has not paid significant dividends in the previous three years.

Japan’s regulatory efforts commenced almost simultaneously. In March 2023, the Tokyo Stock Exchange asked firms to disclose plans to improve capital efficiency, especially if their share prices were below book value.

And then in February 2024, South Korea’s Financial Services Commission announced the “Corporate Value Up Program”, which urged companies to prioritise shareholder returns in exchange for tax benefits.

The outcomes have varied meaningfully by country. China’s and South Korea’s average dividend payout ratios have increased over the past few years, though South Korea’s has recently fallen and Japan’s has stayed virtually flat.

Exhortations by the regulators, in the absence of other reforms, particularly of tax laws, seem to be having limited impact on corporate behaviour.

Indeed, tax treatment of dividends appears to be a key driver of companies’ payout decisions. A wide range of dividend taxation policies apply in Asia, ranging from no or very low tax in Hong Kong, Singapore and Malaysia to 20% to 30% in China, Japan and India.

Unsurprisingly, the companies in the highest tax regimes have the lowest average dividend payouts. The earliest dividend tax reform, the elimination of double taxation of dividends by Taiwan in 1999, significantly increased dividend payouts among Taiwanese firms, a trend that continues to this day.

SUSTAINABLE TREND?

Investors often reward companies for sustainable, increasing dividend payments, which ultimately depend on companies maintaining resilient profitability, strong cash generation and a healthy balance sheet.

On these counts, many large Asian corporate markets score highly on average. Corporate leverage in India, Hong Kong, Taiwan and South Korea has been declining since 2023, while cash generation in all four has been increasing, and both trends are expected to continue, through 2027, according to Factset consensus forecasts.

Asian corporates' shift toward greater dividend payments could still run into hurdles. Companies' profitability may be hurt by the ambiguity surrounding global trade policy, and this could lead them to conserve cash rather than distribute it.

The persistence of this trend may largely depend on whether governments match supportive market regulations with beneficial tax treatment and whether high dividend-yielding stocks continue to generate robust performance, which management teams will have little choice but to notice.

(The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd. and the former Head of Asia-Pacific Equity Research at BNP Paribas Securities.)

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