Goldman says stick to high-dividend Chinese stocks as listed firms build record cash piles

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The State Council’s nine-point guideline document pledges better returns for investors, and reforms to SOEs boost the appeal of high-dividend stocks

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The strategy of betting on high-dividend stocks has proved successful over the past three year. Photo: Reuters

Zhang Shidongin Shanghai

Published: 2:07pm, 24 Jun 2024Updated: 2:13pm, 24 Jun 2024

Investors should stick with buying stocks that promise good dividends in China’s stock market, as a policy push is likely to encourage more payouts and buy-backs, and the cash built up by listed companies is at an all-time high, according to Goldman Sachs.

The recommendation is based on the State Council’s nine-point guideline document that pledges better returns for investors and a new round of reforms to state-owned enterprises (SOEs), analysts led by Kinger Lau at the US investment bank wrote in a report on Monday.

Meanwhile, Chinese publicly traded companies generated a record 2.6 trillion yuan (US$330 billion) in free cash flows last year and amassed 18 trillion yuan of cash on their balance sheets, it said.

The strategy of betting on high-dividend stocks has proved successful over the past three year. The CSI Dividend Index of the top 100 such stocks on the mainland’s exchanges has beaten the benchmark CSI 300 Index each year since 2021.

Chinese listed companies returned at least 2 trillion yuan to shareholders in each of those years, including a record 2.4 trillion yuan of payouts last year, according to Goldman.

“Incorporating high-yielding equities into domestic Chinese investors’ portfolios should expand their efficient frontier, underscoring the potential diversification benefits and portfolio value gains from bond-like equities in a Chinese context,” Goldman said in the report.