What are we looking for?

Sustainable dividends from Japanese stocks set to move even higher with the formation of a new government that ends months of uncertainty.

The screen

The election of Japan’s Prime Minister, Sanae Takaichi, and now the formation of her new coalition government, has spurred the country’s Nikkei Stock Average to an all-time high.

Investors feel that the conservative-minded leader of Japan’s Liberal Democratic Party – the country’s first female prime minister – will embrace tax cuts, increase defence spending and boost government investment to spur the economy.

Meanwhile, the Japanese yen has weakened on speculation that the Bank of Japan may delay further interest-rate increases to foster growth. As our analysts at The Successful Investor point out, a weak yen tends to profit Japanese exporters while lifting their appeal with international investors.

Canadian investors have easy access to Japanese stocks through American Depositary Receipts (ADRs) traded on the New York Stock Exchange. ADRs let you hold the same shares traded on the Tokyo exchange.

Here, we’re searching for profitable Japanese companies offering ADRs and with strong growth prospects given the new political/economic environment. From there, we use our TSI Dividend Sustainability Rating System to pinpoint stocks providing dependable income for investors. Note that the rating system awards points to a stock based on key factors:

Two points if it has raised the payment in the past five years; One point for management’s commitment to dividends; One point for operating in non-cyclical industries; One point for limited exposure to foreign currency rates and freedom from political interference;Two points for a strong balance sheet, including manageable debt and adequate cash; Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments; One point for an industry leader; One point for five years of continuous dividend payments; Two points for more than five

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six Japanese ADRs ready to move higher, while adding to their dividend payouts. Toyota Motor Corp. TM-N and Honda Motor Co. Ltd. HMC-N remain Japan’s two biggest auto exporters. Canon Inc. CAJFF is still one of the country’s top tech manufacturers, with the low yen only bolstering international sales. Nippon Telegraph and Telephone Corp. NTTYY is the leading integrated telecommunications operator in Japan. Meanwhile, the country’s largest bank, Mitsubishi UFJ Financial Group Inc. MUFG-N, continues to benefit from increased lending – as well as higher fees and commissions resulting from the soaring domestic stock market. Finally, global financial services giant Orix Corp. IX-N keeps profiting from its range of operations in banking, insurance, real estate and private equity.

We advise investors to do additional research on investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.