Page 10 - DIY Investor Magazine | Issue 41

WHAT DOES SCHRODER JAPAN TRUST’S
NEW DIVIDEND POLICY MEAN FOR INVESTORS?
· August 2024 10
DIY Investor Magazine
IMPROVING THE TRUST’S APPEAL TO A BROADER RANGE OF INVESTORS
The Board of Schroder Japan Trust plc (SJG) has recently announced a package of measures, including an enhanced dividend policy and a “conditional tender offer” mechanism. These steps are designed to enhance the trust’s investment proposition, particularly for investors
seeking both income and growth from the long-term
value of Japanese equities. This article addresses investors’ likely questions about these changes
and explains their implications for shareholders.
WHAT IS THE ENHANCED DIVIDEND POLICY AND HOW DOES IT DIFFER FROM THE PREVIOUS POLICY?
The new enhanced dividend policy introduced by SJG involves paying out 4% of the average net asset value (NAV) each financial year.
‘FOR INVESTORS SEEKING Previously, the Company
BOTH INCOME AND
was focused on growing
GROWTH FROM THE dividends organically.
LONG-TERM VALUE OF This resulted in average
JAPANESE EQUITIES’ yearly dividend growth of
12.7% over the last ten years, but the level of dividend yield was lower, at 2.1% (as at 31 May 2024). The new policy will therefore result in a much higher and predictable level of income for shareholders.
WHY HAS THE BOARD MADE THIS CHANGE?
The Board believes that, when investing in Japan, dividends will play an increasingly important role in overall shareholder returns. In recent years, Japanese companies have been focusing more on improving shareholder value and good corporate governance practice. This progress was given additional impetus last year by the Tokyo Stock Exchange’s efforts to make Japanese businesses focus on achieving sustainable growth and on raising corporate value.
Companies can improve shareholder value through invest- ments, restructuring, or increasing returns via dividends and buybacks (repurchasing shares). Higher payouts make companies more attractive to income-focused investors.
Japanese companies are well-placed to take some or
all of these steps. The percentage of companies that are “net cash” (i.e. whose cash on the balance sheet is greater than their liabilities) is 44%, which is much higher than in North America and Europe. That gives those companies scope to invest in their business, or increase returns to shareholders, or both.
This should make Japanese companies an increasingly appealing proposition for investors who are seeking income, while also obtaining growth from their investments.
Disclaimer: Past performance is not a guide to future performance and may not be repeated. The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors. The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies, and/or current market conditions and are
not an exact indicator.
HOW WILL THE ENHANCED DIVIDEND POLICY IMPACT THE COMPANY’S INVESTMENT STRATEGY?
The new dividend policy will not alter the Company’s investment approach or strategy. SJG will continue to focus on well-managed, high-quality Japanese companies where current share prices do not yet fully reflect their potential. This ensures that the trust remains committed to identifying undervalued businesses with strong growth prospects across the complete spectrum of Japanese companies.
WHAT IS A CONDITIONAL TENDER OFFER?
A conditional tender offer allows shareholders to sell a portion of their shares back to the company in the future under specific conditions. This can serve as a performance accountability measure and a tool for managing the discount at which the company’s shares trade relative to NAV.