The Best Stable Dividend Payer in China

The Chinese economy is one of the fastest growing in the history of the world. It’s a well known economic fact that China is playing an increasingly important role in the world economy, and its people are getting wealthier and more educated. In the first quarter of this year, China said its economy grew 11.9 percent. This has been reflected in the stock market: the Shanghai Composite Index rose 80% in 2009.

However, the market has been struggling this year, with the Shanghai Composite Index down 21%. The Hong Kong based Hang Seng index is down about 10%. If the outlook for the Chinese stock market and the Chinese economy is looking more uncertain, why am I excited about dividends in that market?

Well, the truth is that several very high quality companies that yield significant dividends have now become available at reasonable prices. One such company is Hutchison Whampoa (HUWHY), a renowned multinational conglomerate operating a variety of businesses in 54 countries across the world with approximately 220,000 employees. The company has a history of conforming to the highest standards of corporate governance, transparency and accountability (which is unusual in China). The company’s operations consist of five core businesses: ports, property and hotels, retail, energy and infrastructure including finance and investments, and telecommunications.

Hutchison Whampoa (HUWHY) has ADRs allowing US investors to buy shares in the company. Each ADR represents 5 shares of the company that is listed in Hong Kong. At the current stock price, the conglomerate is yielding about 3.44% in dividends.

The real draw card with Hutchison (HUWHY) is not only the annuity nature of the earnings, but the fact that founder Li Ka-shing is still around and owns more than 50% of the company. If you’re unfamiliar with that name, allow Forbes to introduce you: Lee Ka-shing is ranked number 14 on the Forbes 400 list, with an estimated net-worth of $21 billion (all self made). Hutchison Whampoa is the world's largest operator of container terminals, world's largest health and beauty retailer by number of outlets, a major supplier of electricity to Hong Kong and a real estate developer. He quit school at age 15 to support his family; made plastic flowers that he exported to U.S. in the 1950s. He’s oft been called the “Asian Warren Buffett” and his nickname is “Superman” for his incredible investing ability.

Over the past five years, revenues at the company have grown by 14%, while profits have grown by 17%. The really interesting part about this, however, is not the rate of growth of earnings or revenues, but the fact that the company has paid out $1.12 in dividends per share every year, for the past ten years. Even when earnings slipped below this level in 2003, Hutchison paid out that same $1.12 per share. The number of shares in issue has stayed constant over this period, meaning the dividend yield over the last ten years is directly comparable and a good indicator of value. The PE ratio based on the Hong Kong financials is 15 times.

The average dividend yield over the last ten years is 2.19%. Given that the yield now is at 3.44%, this company of incredible quality is really trading at a 57% discount to the ten year average. With the dividend fixed at $1.12, and an attractive yield, this could be a very interesting addition to the dividend-seeking investor.

Li Ka-shing has also noticed the recent price weakness. The tycoon raised his stake in Hutchison Whampoa, according to a disclosure filed to the stock exchange Thursday. Last month, Li bought 550,000 Hutchison shares at an average of ADR-adjusted $37, raising his stake in the blue-chip telecommunications conglomerate to 51.87%.

Make sure you do thorough research before investing for dividends, particularly for stocks that are based outside of the US, even though they provide arguably better prospects and returns than similar US companies.

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