When the froth disappeared, guess what investors in Japan demanded? A return to profits and dividends. Remember, investing isn’t supposed to be exciting. It’s about participating, as an owner, in profits. They matter.
In The Wall Street Journal, Peter Landers explains that investors in Japan are attracted to the dividends and share buybacks that add real value to their shares. He writes:
In 1989, six of the top 10 Japanese companies by market value were banks. Today the top ranks are dominated by companies skilled in international business.
Some are well-known names like Toyota, Sony, Nintendo, Honda and Hitachi. But the Tokyo market has also been driven by what stock picker Lynch called “10-baggers,” little-known companies with a must-have product or service that helps their shares soar by as much as 10 times, or in some cases even more.
The stock price of Tokyo Electron, a maker of etching machines used in semiconductor factories, has risen by 19 times in the last decade. After Tokyo Electron surged 6% Thursday, propelled by record earnings from U.S. chip maker Nvidia that seemed to augur well for the chip industry, the company is now Japan’s third most valuable, trailing only Toyota and Mitsubishi UFJ Financial Group.
Though they are listed in Tokyo, it would be a mistake to see these companies simply as Japanese. Foreign shareholders held 58% of Sony shares as of last Sept. 30, and countries outside Japan account for more than four-fifths of its revenue. Even a longtime domestic stalwart like Hitachi brings in more than 60% of its revenue from outside Japan, and foreigners own about half the stock.
What these foreign investors want is return—and they are getting it thanks to Japanese companies’ enthusiasm for dividends and share buybacks. The size of buybacks quadrupled in the decade to 2023, reaching the equivalent of nearly $60 billion, and companies have ratcheted up dividends in line with their soaring profits.
Action Line: When you want to talk about profits and dividends, I’m here.
