By Daniel Leussink
TOKYO (Reuters) - Investors in Asian stocks are picking companies and sectors that promise better long-term returns, overlooking the broader uncertainties around profits stemming from global trade and economic growth risks this year.
For some long-term investors in Asian equity markets, the evidence of a deeper change in the region's culture away from hoarding cash and towards rewarding investors with higher dividends is also a reason to stay invested.
That comes even as expectations grow among analysts that dividends per share by Asia Pacific companies, already on a downtrend since mid-2018, will fall more over the next 12 months than those doled out in North America and Europe, according to Refinitiv data.
Analysts also downgraded their dividend forecasts for a larger proportion of Asia Pacific companies relative to numbers in North America and Europe, the data showed.
(GRAPHIC: Analysts' dividend per share forecast drops in Asia-Pacific in 2019 - https://tmsnrt.rs/2ErqRA1)
(GRAPHIC: More downgrades than upgrades to dividend per share forecasts by Asia-Pacific firms - https://tmsnrt.rs/2M1a7Wx)
Yet despite this lacklustre outlook, investors are counting on a change in corporate culture in Asia that will drive companies to distribute their large cash piles.
In fact, with the risks from the U.S.-Sino trade war hurting stocks of export-reliant economies such as China, South Korea and Japan, hopes around dividends are one of the few drivers of investor optimism in the region.
For long, dividends were "something that used to be a two-minute conversation at the end of a one-hour meeting. Now, it's number three or four on the agenda with every company we meet," said Sat Duhra, fund manager at Janus Henderson Investors in Singapore, who invests in firms with high dividend growth.
The total cash and short-term investments of more than 9,000 companies in the region grew to $2.84 trillion as of the end of December from $1.7 trillion five years earlier, an increase of 67%, Refinitiv data showed.
The S&P Pan Asia Dividend Aristocrats Index <.SPDGPAUP>, which consists of firms that have followed a policy of increasing dividends every year for at least seven years, has returned 6.8% this year compared with 3.2% for a broad Asian market index, S&P data showed.
Companies with a recent track record distributing dividends are now sought after, particularly as the prospect of a global growth slowdown and lower interest rates drives investors into defensive, income-paying stocks.
"Income is really something that has come into focus because of the low interest rate environment we've had since 2008," said Jim McCafferty, head of Asia-ex-Japan equity research at Nomura in Hong Kong.
"Given that traditional savings products would be in Treasuries or bank deposits and base rates remain close to zero, investors have got to look for more adventurous ways of providing an income."
For Asia Pacific firms, the median payout ratio, which is the percentage of earnings that a company pays in dividends, rose to 33% as of end-December, up from 28% at end-2014, Refinitiv data showed. That compared to 34% for U.S. companies and 27% for European firms as of end-December, according to Refinitiv figures.
Investors attracted to dividend growth see bright spots in Singaporean banks, Indonesian telecom firms, utility and infrastructure players in China and Thailand, and Australian energy names.
(GRAPHIC: Asia-Pacific median dividend payout ratios - https://tmsnrt.rs/2WGBnuf)
(GRAPHIC: Asia-Pacific median dividend payout ratios - https://tmsnrt.rs/2W3oBsG)
Companies with a history of growing dividends and setting aside a larger share of earnings for paying out dividends are doing well, though they were also helped by favourable macroeconomic factors, such as a recent recovery in chips or higher commodity prices.
For instance, the Sydney-listed shares of Australian mining giant Rio Tinto Ltd (AX:RIO) have rallied 36.1% this year, while those of smartphone maker South Korea's Samsung Electronics Co Ltd (KS:005930), gained 10.2% compared to a flat performance of Seoul's KOSPI stock index (KS11).
Both firms paid out more dividends in the latest year compared to the previous year, while seeing a rise in their payout ratios, respectively, to 72% at end-2018 from 67% a year earlier, and 22% at end-2018 from 14% the year before, Refinitiv data showed.