Tag: stock-market

How to beat inflation with Japanese dividend stocks

Deflation in Japan is a thing of the past.

After years of trying to escape the spiral of falling prices, the Bank of Japan seems to have finally succeeded in its goal. The official inflation rate now sits at around 2.5%, and prices have been hiked on everything from electricity to rice. We foreign residents of Japan have long been concerned with how the spending power of our yen is eroded by inflation in our home countries, but now we are facing a new dilemma.

We are losing spending power in yen terms, too.

Holding JPY cash has been unattractive for decades but is a much worse proposition now. However, with Japanese government bonds still yielding very little whilst carrying significant capital risk, there is no ‘risk-free’ way to counter inflation.

Fortunately, Japan is somewhat of a dividend stock haven. Many quality companies offer a solid return on your hard-earned yen, albeit with some price volatility. But how should investors determine which stocks to buy? Let’s explore a few ideas.

How do dividends work?

First, some basics: dividends are the percentage of a company’s earnings paid to its shareholders as their share of the profits. They are typically paid quarterly, but in some cases, they may be paid semi-annually or annually.

Investors often buy stocks anticipating capital growth but dividend income is also valuable. Established companies that pay a stable dividend are in demand globally and nowhere more so than in Japan.

There are a few key dividend dates to look out for:

  • Announcement date – the date a company’s next dividend is announced
  • Ex-dividend date – the day on which a stock trades without the benefit of the next scheduled dividend payment. If the ex-dividend date is 30 March, investors who want to earn the next dividend need to own the stock at least one business day before that date
  • Record date – the cutoff date to determine which shareholders are eligible to receive the dividend
  • Payment date – the date the dividend is credited to investors’ accounts

When checking out potential dividend stocks, the ex-dividend date is the most important one to pay attention to. If you miss that date, you will have to wait for the next dividend. The stock price can also fluctuate significantly around the ex-dividend date. Popular dividend stocks tend to be bought as the ex-dividend approaches and then sell off after the date has passed.

The easy way to collect dividends

If you like to keep things simple, the low-stress way to own the best dividend stocks is through an Exchange Traded Fund (ETF). ETFs are ubiquitous these days and cover all of the major investment themes. Do a search for ‘high dividend yield ETF’ or ‘高配当株’ and you will find plenty of options.

Here are a few examples I found after a quick search in my SBI account (not investment advice):

  • NEXT FUNDS Nikkei 225 High Dividend Yield Stock 50 Index Exchange Traded Fund (1489)
  • NEXT FUNDS Japan High Dividend Equity Active Exchange Traded Fund (2084)
  • One ETF High Dividend Japan Equity (1494)
  • NEXT FUNDS Nomura Japan Equity High Dividend 70 ETF (1577)
  • Daiwa ETF TOPIX High Dividend Yield 40 Index (1651)

Yahoo Finance is as good a place as any to get a simple overview of these ETFs. Then, if you want to know more, search for the company website and read more about the fund strategy, holdings etc.

These ETFs can be purchased in either the growth portion of NISA or a regular taxable trading account. For the tsumitate part of NISA, search for dividend-focussed mutual funds.

Picking stocks

If you want to pick out some dividend stocks for yourself, the top holdings of these ETFs are a great source of ideas. I am no stock analyst but this is how I got started with dividend stocks. I bought the Next Funds 1489 ETF first and then I went to the ETF page on the issuer’s website and found that you can download the full list of holdings there. (see information on underlying investments) Then, I did some research and picked out a few stocks I wanted to own directly.

Looking through the holdings in the ETFs listed above, it is clear that several industries tend to foster good dividend stocks (again, not investment advice):

  • Pharmaceutical/healthcare: names like Takeda Pharmaceutical Company Ltd (4502) and Astellas Pharma Inc (4503) yield over 4% p.a.
  • Trading companies – Warren Buffett has acquired around a 9% stake in each of Japan’s big five trading companies. He borrows yen at around 1% and collects his dividends, which are between 3-4%. If you are looking for ideas outside of the big five, perhaps take a look at Sojitz Corp (2768) or Kanematsu Corp (8020)
  • Steelmakers – Nippon Steel Corp (5401) has been in the news due to its proposed acquisition of US Steel, but it is also a highly rated dividend stock. Kobe Steel Ltd (5406) and JFE Holdings Inc (5411) are also good plays.
  • Banks – Japan’s megabanks are known as solid dividend payers and even upstarts like Seven Bank Ltd (8410) pay a nice income. Be aware that banks are sensitive to Bank of Japan interest rate decisions though.
  • Shipping Companies – Japan’s big three shipping companies also feature prominently in the dividend ETFs. They are Nippon Yusen Kabushiki Kaisha (9101), Mitsui O.S.K. Lines Ltd (9104), Kawasaki Kisen Kaisha Ltd (9107)

This is by no means an exhaustive list and good dividend stocks are not limited to the industries mentioned above. Perhaps the most popular Japanese dividend stock is Japan Tobacco Inc (2914) – interestingly that stock has been down a bit recently due to some legal issues in Canada. Remember that the price of dividend stocks can and will go up and down. However, as long as you keep hold of them, you will be paid your dividends.

As for the question of ETFs vs. picking your own stocks, keep in mind that ETF holdings will be regularly updated depending on the particular ETF’s criteria. Over the shorter term, you will mostly find the same companies but the weighting of each stock will change. Picking stocks can be fun, but buying an ETF saves you from having to do detailed analysis whilst providing broader exposure.

In summary:

  • JPY cash is trash, inflation will eat up your spending power
  • ETFs are a great way to get started with dividend stock investing and, for most people, offer the most straightforward option
  • One way to find individual stocks is to dive into the ETF holdings to see what their top positions are
  • Do your own research on stocks from industries known for paying steady dividends
  • Bonus: look out for companies that have a record of increasing their dividends year after year

Happy hunting and let’s pump up that spending power!

Top image by rawpixel.com on Freepik

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

All aboard for the Tokyo Metro IPO!

Last week, a reader suggested I write a post about the upcoming Tokyo Metro IPO. This seemed like a great idea, except I have paid precisely zero attention to the offering and would have to spend some time getting up to speed. I don’t really know much about IPO processes and generally see them as a scheme where retail investors provide exit liquidity to venture capital while banks make off with huge fees. Hmmm, I thought maybe I’ll look into it when I have time…

Then, the next day, my wife texted me from work about it. She works with a couple of shrewd investors who were excited about the IPO. Ok, now my wife wants to participate, so I really do have to figure out what the deal is!

First of all, this is clearly going to be a popular offering. You don’t have to be a high-level analyst to determine that the Tokyo Metro is profitable and occupies huge swathes of prime Tokyo real estate. Additionally, this is not a start-up exit to public markets. The Tokyo and national governments are selling half of their holding to the public. (the central government plans to use the proceeds to repay reconstruction bonds issued after the 2011 Tohoku earthquake and tsunami)

What’s the deal?

Tokyo Metro Co. Ltd will be newly listed on the Tokyo Stock Exchange on Wednesday 23 October, 2024. In total, 232,400,000 shares of common stock will be sold to the public. An additional number of shares may be offered depending on demand.

How to participate

Investors who wish to participate can apply through participating securities companies during the application period. If you have an online brokerage account, you will most likely find advertisements and guidance for the offering when you log in.

The price of shares will be determined through a ‘bookbuilding’ process, which is a method to gather investor interest and determine the final price based on demand. The bookbuilding period will be from 8 October to 11 October. This is when you submit your purchase request via your brokerage account. The minimum number of shares you can apply for is 100 – and increments of 100 thereafter. The indicative price per share is ¥1,100. This means the IPO would raise ¥319.55 billion, giving the company an overall value of ¥639.1 billion.

The final offering price and the number of shares to be allocated will be announced on 15 October and the actual public offering period runs from 16 October to 21 October. This is when participants need to deposit sufficient funds to pay for the shares in their brokerage account – make sure you follow the instructions here or you will end up missing out.

There is no guarantee that participants will be allocated all of the shares they apply for. It will depend on the demand for the offering.

Need more info?

For those interested, a Zoom webinar will be held on 3 October at 14.00. You can find details of the offering and a Zoom link here.

About Tokyo Metro

Tokyo Metro operates an extensive subway network with 9 lines mainly in Tokyo’s 23 wards. The most used stations are Ikebukuro (2.487 million daily passengers), Shinjuku (2.165 million), and Shibuya (1.955 million). Total average daily ridership in 2023 was 6.574 million passengers.

The real estate business manages many major properties, including Shibuya Stream, Shibuya Scramble Square, and Tokyo Plaza Ginza. There is also the Shinjuku West Gate Area Project, which is scheduled for completion in 2029.

Tokyo Metro also operates retail businesses such as Echika, a shopping street in some of the metro stations. In-station advertising is, of course, another major business area.

Show me the money!

Tokyo Metro suffered a severe drop in revenue during Covid, but recovered to 95% of pre-pandemic levels by July 2024. The return of inbound tourism, increased population and infrastructure investments played key roles in the recovery.

As part of its growth strategy, Tokyo Metro is focussing on improving accessibility and expanding partnerships with other transport services to increase ridership.

A new trip-planning app is planned for launch this year along with an updated rewards program for frequent passengers – gotta have a point card strategy in Japan!

Tokyo Metro aims to integrate its services better with tourist facilities and provide tailored travel experiences via the app. This is part of the strategy to create more reasons for passengers to use the metro, especially for leisure and tourism. The company is also promoting more contactless payment methods, such as QR codes and credit cards, to streamline fare collection and enhance convenience for passengers.

Tokyo Metro is also working on the expansion of certain metro lines, including the Yurakucho and Namboku lines, which are projected to be completed by 2030.

What to expect from the investment

The share offering is clearly going to be in high demand, with investors looking for a long-term position in a profitable business with a solid dividend. (I’m hearing rumours of a dividend around 3.5% but no idea how accurate that is) There will always be plenty of passengers/customers and the real estate value alone makes the company highly attractive.

On listing, I can imagine a scenario where the share price increases significantly in the first few weeks/months. That may well be followed by a correction in price. Many will view this as a trading opportunity, but remember that you will be trading against every investor in Japan (and many abroad), all of whom will think they have come up with a winning strategy!

My view is that Tokyo Metro will be a solid long-term hold, but admittedly the temptation to sell the initial rally to buy back lower will be strong. If you are going to do so, it’s probably better to be first!

So, there it is. If you are looking to get involved, check your brokerage account and make sure you are prepared to make your bid on 8-11 October.

Best of luck!

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

Turning point

So, here we are. Overnight, the Federal Reserve announced a rate cut of 50bps, the first cut in four years. Projections imply a further 50bps later this year and another 100 bps in 2025. Welcome to the rate cut cycle.

US markets reacted cautiously, with stocks rising ahead of the announcement only to give back those gains and close down slightly. 50bps is considered a big initial cut, so it will be interesting to see how markets behave over the next few days as they digest the news.

Surprisingly, the yen fell against the dollar to the upper ¥143 range and Japanese stocks were up strongly this morning. Again, time will tell if the initial reaction is the correct one.

The macro gurus will no doubt be fighting it out as to whether the US economy is coming in for the much-vaunted soft landing or heading for recession. Jerome Powell sounded upbeat on America’s economic prospects and made clear that he views the larger cut as a move to prevent the Fed from falling behind.

We will find out in due course.

Sometimes the most obvious take is the correct one: rate cuts are generally bullish for risk assets over time, although we may need to ride out some volatility in the short term. The doomers will keep dooming but optimists make more money in the long run:

“Bulls make more than bears, so if anything being an optimist about life and about things in general is a great attribute as an investor. You just can’t be starry-eyed and naive.” — Stanley Druckenmiller

Deja vu

Three assets that are a hot topic in this new environment are gold, silver and bitcoin. It’s funny because I remember these three getting a lot of attention four years ago. Granted, the post-Covid crash environment in 2020 was very different from today – for a start, the Fed funds rate was already at zero in September 2020. However, it’s interesting how things move in cycles. Gold is around all-time highs now and silver enthusiasts are clamouring for a breakout. It has a strong 2020 feel to me, so I thought I would take a look back and see what happened four years ago.

Observe the five-year charts:

As you can see, both gold and silver reacted quickly to the stimulus injection that followed the March 2020 Covid shock. Liquidity is generally good for hard assets. Bitcoin took longer to catch alight but when it did, the fireworks were spectacular as it took out the previous all-time high of $20k and then marched right on to $60k and then $69k in 2021. That move started at $6k at the end of March 2020 and BTC was still only $11k on 19 September 2020.

I like all three of these assets in the current environment, but I like one much more than the others.

Game time soon, anon.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

Buckle up!

It’s the 1st of August. The two big central bank decisions are behind us and summer is in full swing. So what comes next? Where will markets be at the end of this year? Nobody knows the answer to that question but I can almost guarantee you one thing: there is turbulence ahead.

Just like Japanese summer, the volatility already got started in July. However, we seem to have entered a new phase and central banks are the main drivers of the momentum shift.

Having hiked rates to levels unseen in 15 years, there is little doubt that the BOJ has entered a tightening cycle. Governor Ueda did not rule out another hike this year and the yen responded quickly to his comments, rising to 150 against the dollar. Today it is trading at around 149. Weston Nakamura sees 152 as the most important price level in global macro right now and we are already well beyond it.

Japanese stocks reacted positively to yesterday’s decision, pumping across the board. However, the Nikkei 225 index slumped -2.5% today as exporters felt the pinch of a stronger yen.

US tech investors rotate into small caps

In the US, Fed chair Powell left rates unchanged while hinting that he is getting closer to a cut. The market fully expects this to happen in September and there will be visible disappointment in people’s brokerage accounts if it doesn’t. Volatility is already rearing its head. Tech stocks have sold off over the past month amid fears that the AI bubble might be bursting. Nvidia has been trending down from its 6 June high of $140.76 and a -7% dump on 29 July seemed ominous, but last night it pumped +12.7% after AMD’s better-than-expected earnings release. Go figure…

Hats off to strategist Tom Lee for calling the rotation into small caps. IWM has been the main beneficiary of the tech selloff.

The crypto coaster rolls on

Not to be outdone by chipmakers, crypto remains unpredictable over short time frames. At the Bitcoin conference in Nashville last week, none other than Donald Trump showed up to play to the crowd. His list of “promises” included: keeping the Bitcoin the US government has seized as a strategic reserve, (yes, wow!) firing Gary Gensler on day 1, ending the democrat’s war on crypto and making the US a leader in mining.

The air quotes around “promises” don’t need much explanation. Trump has zero interest in crypto and is plainly exploiting the dem’s antagonistic stance toward the industry for votes. But don’t let that distract you from the bigger picture: governments are examining Bitcoin as a strategic hedge against their own money-printing excess. The fact that this conversation is even happening is remarkable. Bitcoin game theory is going to get very interesting in the months and years ahead.

Bitcoin is back in the $64,000 range today, as it appears that the Biden/Harris camp may be selling off the reserve that Trump promised to keep. It’s never boring. See my Bitcoin bull market update for more.

Meanwhile, investors in Japan received a lesson in FOMO from Bitcoin proxy Metaplanet Inc. this week. Shares went on a tear after the company announced its Bitcoin treasury strategy in April and many people piled in late. Now the stock is coming back down to earth with a bang as the excitement wears off. Shares are down over -70% from their 24 July high and the move down doesn’t look done yet. Of course, every man and his dog wanted the stock when it was skyrocketing and nobody is interested now. There’s a clear lesson there. That said, I wouldn’t be surprised if Metaplanet makes another run if/when Bitcoin makes a decisive break above its previous all-time high and enters the parabolic phase of the cycle. Timing is everything in narrative-driven trades.

So, what to do?

I have noticed an uptick in clients trying to position and trade some of these macro moves, particularly the USD/JPY angle. The problem with access to unlimited information, content and opinion is the urge to react to it and do something. So here’s my two cents:

The summer, and perhaps the rest of the year, will see some turbulence. Volatility goes both up and down. Overall, the backdrop keeps me optimistic. Rate cuts in the US are coming – it’s just a question of when. As things currently stand, it would not be a panic cut, which is constructive for risk assets. US stocks, gold and crypto should react accordingly. Regardless of who wins, the US election will remove a lot of uncertainty. If you are broadly diversified, you could do a lot worse than fastening your seatbelt and taking a nap for a while.

If the BOJ is tightening and the Fed is loosening, the yen should continue to strengthen. This is going to put some strain on export-related Japanese stocks and the market as a whole looks more unpredictable than the US. Governor Ueda said he doesn’t think the rate hike will damage the Japanese economy. He’s probably right for now, but let’s see what kind of toll a series of hikes will take. The last time the BOJ tried to hike was 2007/2008 and that move was reversed in a hurry…

If you have been waiting for your chance to escape JPY and get into your base currency, that window is opening. Don’t miss it – long term it does not look good for the yen.

Stay hydrated folks!

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

All-time highs!

I spent the last year and a half writing financial content for a broker. I enjoyed the experience immensely and learned a lot in the process. Unfortunately, the contract ended, but I now have 10-12 hours a week that have been returned to me. So, readers of this blog may notice some extra market commentary/analysis being posted here. I hope it is useful.

It’s central bank week, with both the Federal Reserve (Fed) and the Bank of Japan (BOJ) conducting their policy meetings. As expected, the Fed held rates steady at 5.25-5.5% while CPI came in marginally cooler than expected. The Fed was surprisingly hawkish, forecasting just one rate cut in 2024.

Some think the BOJ may actually tighten at their meeting. If they do, it will likely be a minor adjustment. There will certainly be discussion about reducing the purchase of government bonds.

USD/JPY is currently trading close to the ¥157 level. With no major change in the US/Japan interest rate differential, we can expect the yen to remain weak for some time.

US markets hit all-time highs

In the US, the S&P 500 and the NASDAQ hit fresh all-time highs overnight. Apple Inc (AAPL) rose again after jumping +7.3% on 11 June when it unveiled a range of AI-enabled features and software for its devices. Apple overtook Microsoft Corporation (MSFT) to once more become the world’s most valuable company. Apple’s market cap now stands at a staggering $3.27 trillion.

Oracle Corporation (ORCL) surged +13.3% after the cloud technology company announced two new partnerships with OpenAI and Google Cloud while also forecasting strong revenue growth in fiscal 2025. Broadcom Inc (AVGO) jumped +14.6% after hours on strong earnings and a big stock split.

TDK and Hitachi set new highs since listing

Japanese stocks are largely in wait-and-see mode as the BOJ meeting kicks off today. TDK Corp (6762) has set another new high since listing as electronic parts stocks related to Apple are bought up. TDK announced in December that it will manufacture lithium-ion battery cells for iPhones in India.

Hitachi Ltd (6501) also hit a new high since listing of ¥17,340 on 11 June. On 7 June, its subsidiary, Hitachi Energy announced that it will invest $4.5 billion to increase production of power transmission and distribution equipment by 2027. Hitachi shares have cooled a little in the last couple of days, despite the announcement of plans to invest ¥300 billion in generative AI in fiscal 2025.

At lunchtime on 13 June the Nikkei 225 index is up slightly to ¥38,831.

Crypto stocks rise

Bitcoin, being the quickest asset to react to economic data and central bank policy, fell the day before the CPI data release and immediately bounced when the numbers came in soft. At the time of writing BTC is trading at around the $68,000 mark. Crypto stocks fared well with both Microstrategy Inc (MSTR) and Marathon Digital Holdings Inc (MARA) up overnight. Meanwhile, in Japan, Metaplanet Inc (3350) announced the purchase of an additional 23.35 Bitcoin on 11 June. The company now holds 141.07 Bitcoins, acquired at an average price of ¥10,278,391 per coin. Shares are up +494% since Metaplanet announced the adoption of Bitcoin as its core treasury asset on 8 April.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.