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China CSRC Demands Higher Dividends from China Listed Companies

Companies / China Stocks Sep 03, 2008 - 02:29 AM GMT

By: Money_and_Markets

Companies

Best Financial Markets Analysis ArticleNilus Mattive writes: The China Securities Regulatory Commission — Beijing's equivalent of the U.S. Securities and Exchange Commission — is pressing the country's listed companies to adopt more generous dividend policies.

Previously, China-listed companies that wanted to issue additional stock had to pay out at least 20% of their annual average profit for the past three consecutive years in the form of shareholder dividends (cash or stock).


The CSRC wants to raise the minimum amount to at least 30% of profits to shareholders. If a company refuses to comply, it will be punished by not being able to float new bonds or sell additional shares.

According to the Chinese agency,

"Giving fair returns to shareholders is part of listed firms' responsibilities and is the foundation of stable and healthy development of the securities market."

Listed companies will also have to include information on their cash dividend policies and previous cash dividend data in their annual reports.

If they don't declare cash dividends? Well, they'll have to tell investors why, along with what they plan on doing with their retained earnings!

The CSRC was soliciting comments on the new plan through last Friday. And while I didn't shoot them an e-mail, here's my official response — "Heck, yeah!"

I couldn't agree with them more strongly. In fact, the only bone I'd pick with their policy is that it allows the "dividends" to be paid as stock and not solely in cash.

It's something I've said many times before. Shareholders, as the owners of a company, deserve to get their portion of the profits in regular cash installments. Not someday. Not if or when the stock goes up.

Unfortunately, as the CSRC so candidly stated,

"We've noticed that some listed companies lack continuous and steady long-term dividend systems."

Yeah, I've noticed the same thing. And not just on foreign exchanges. Think of how many U.S.-listed firms fail to deliver dividends at all!

The CSRC policy won't directly affect that, even for Chinese companies trading on our exchanges. But it does send a great message to the markets about the importance of dividends. And the mentality behind this mandate is precisely why ...

Plenty of Chinese Companies Including U.S.-Listed ADRs Are ALREADY Paying Very Nice Dividends

As I have previously said, my favorite way to play foreign markets is by cherry-picking individual dividend-paying companies. And rather than deal with the hassles of buying foreign shares, I advocate buying American Depositary Receipts (ADRs).

These U.S.-listed shares are easy to buy and sell through your regular broker. Plus, I think the companies that list ADRs tend to have better corporate governance and transparency than many of their foreign-listed-only peers.

When it comes to China, income investors have some good choices. That's especially true now since this year's pullback in Asian shares has pushed prices down and yields up.

Here's a quick rundown of eight popular dividend-paying Chinese ADRs ...

Aluminum Corp. Of China (ACH): Produces alumina and primary aluminum; dividend has grown 38.59% over the last five years.

China Teleco (CHA): Provides wireline, telephone, data and Internet services; dividend has increased 58.96% over the last five years.

Huaneng Power (HNP): Builds, owns and operates coal-fired power plants; dividend has risen 15.66% over the last five years.

NAME TICKER RECENT YIELD
Aluminum Corp ACH 1.59%
China Teleco CHA 2.07%
Huaneng HNP 5.65%
China Life LFC 1.56%
People's Food PFH 2.98%
Petrochina PTR 2.94%
Sinopec SNP 3.26%
United Food UFH 2.79%

China Life (LFC): Sells life, accident and health insurance; dividend has risen 231.23% in just the last year.

People's Food (PFH): Produces and sells pork and chicken products under the Jinluo brand; while the dividend decreased 17.38% over the last five years, the stock's yield is still about 3%.

PetroChina (PTR): Major integrated oil and gas company; dividend has risen 27.88% in the last five years.

China Petroleum and Chemical (SNP): Company, also known as Sinopec, is a major oil, gas and chemical producer; Dividend has been upped 19.16% in the last five years.

United Food Holding (UFH): Makes and markets meat products under the Jiangquan brand; Like People's Food, the dividend decreased over the last five years, but the current yield remains close to 3%.

Is now the time to load up on these stocks? Only you know what's right for your individual portfolio. As always, you should do your own research and consider your individual risk tolerance before you make any purchases.

But I can tell you that my Dividend Superstars subscribers currently own one of these companies, and I expect the stock to continue kicking out nice dividends and to post serious capital appreciation, too.

I also want to leave you with one last idea: You don't need to limit your search to just China-based companies. Many Asian countries are experiencing tremendous growth, and they also offer some great dividend-paying firms.

In fact, I'm heading over to Asia for two weeks starting this Friday, and I plan on doing more digging while I'm over there. So stay tuned!

Best wishes,

Nilus

P.S. Interested in learning which of these dividend-paying Chinese ADRs I recommend right now? Subscribe to Dividend Superstars for just $39 a year. Not only will I rush you my latest issue, but I'll send you a series of special reports right away.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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