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Japan remains income haven for investors amid market turbulence

In fact, dividends declined by just 2.1% nationwide in 2020. Meanwhile, only one Japanese company in 30 cancelled dividends between April and December, and only a third made cuts. Some firms—like Nippon Parking Development, Kao Corporation, and Noevir Holdings—have even increased dividends despite reporting earnings for the year which fell.

In comparison, a lack of cover led to a global dividend bonfire across much of the rest of the world. Total payouts fell a devastating 12.2% throughout 2020 ahead of this year’s rebound.

What does this mean?
Well, for long-term investors, it shows that Japan boasts a pool of firms whose unparalleled dividend growth is matched by its dividend security. And even better, this pool of firms is positioned to grow considerably.

Ongoing reform

Having already got the ball rolling, Japan is now devoted to maintaining momentum where corporate governance is concerned, whoever leads the country.

After all, despite original architect, Shinzo Abe, stepping down as Prime Minister in August last year, his successor, Yoshihide Suga had pledged to continue Abe’s efforts to rehaul corporate Japan. Likewise, another revision to Japan’s stewardship code is now imminent and it is unlikely that whoever succeeds Suga, will cease to continue the momentum of corporate governance reform.

But while both Abe and Suga have had considerable impact over the last few years, the Tokyo Stock Exchange itself is also through its reorganization of the headline indices in Japan, adding to the pressures on corporate management to conform. And the goal, quite simply, is to make listed firms boost their transparency, profitability, and liquidity across the board.

Specifically, the TSE will thin out its five existing divisions into three simpler sections – Prime, Standard, and Growth. To qualify for these sections, firms must meet a range of new listing criteria that reinforce Japan’s Corporate Governance and Stewardship codes.

Among other requirements, firms must demonstrate both high levels of liquidity and excellent standards of corporate governance.

Likewise, the TSE will impose minimum thresholds for the tradable market capitalisation of companies in each segment. This could be an excellent way of clamping down on the controversial practice of cross-shareholding.

Critically, all the signs currently suggest that companies are listening to what the TSE has to say. In fact, the company recently revealed that more than two-thirds of its largest “First Section” companies now meet the requirement for listing on its Prime section.

A bright future

Issues still remain. As the TSE has noted, around a third of First Section companies still do not meet its Prime listing requirements, but a direction of travel has been established.

Japan went into the pandemic with many corporations having improved their payouts and shareholder rewards. Their commitment to maintaining and building on these improved standards was then proven throughout Covid.

With recovery beginning as the pandemic enters its latter stages, and with authorities forcibly encouraging further improvements to corporate governance moving forward, we expect the list of strong, reliable Japanese income stocks to continue growing and for the nation to become an increasingly popular destination for investors well into the future.

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