Experts Select Top High Dividend Japanese Funds for New NISA in Down Market

The “New NISA” system, which was reborn in 2012, is a system under which taxes on investment income such as dividends, distributions, and gains on sales (gains on transfer) are zero for the entire life of the investment. High-dividend stocks” are gaining popularity because they can be invested and managed tax-free for a “lifetime.

Through the new NISA, investors can receive regular cash distributions from bond funds, bond ETFs, REITs, REIT funds, and REIT ETFs, but if you want to receive regular cash flow while also aiming for gains in price, high-dividend stocks are a better choice.

Many people may have started investing using the “New NISA” that started in 2012.

The market rose steadily during the first half of the year, but experienced its first major plunge in August ’24. This was due to the accelerated appreciation of the yen following the Bank of Japan’s additional interest rate hike, as well as concerns about the possibility of a recession in the U.S. economy.

However, even in such a declining market, high-quality high-dividend stocks tend to pay stable dividends, so they are in great demand from investors when prices fall. They tend to be more resilient to overall market declines and also tend to emerge from declines faster.

In this article, we will thoroughly compare “Japan High Dividend Stock Fund,” which provides an easy diversified investment in high dividend stocks in a single fund.

How can I receive dividends?

Dividends can be received from as little as one share and are distributed according to the number of shares held.

In order to receive dividends, shareholders must hold their shares until a specific date. This is called the “final day of entitlement,” and as long as you hold your shares on that date, you can receive dividends and shareholder benefits. Dividends are not actually received until about two to three months after the “vesting date,” which is two days after the final day with rights, at which time they can be withdrawn as cash.

The day after the final day for rights is called the “ex-rights day. After this day, shares can be sold and still receive dividends.

In fact, on the ex-rights day, investors are more likely to sell their shares, and the stock price is more likely to fall. Conversely, toward the last day of the rights period, investors have a higher tendency to buy stocks, so the stock price generally tends to go up.

What are high-dividend stocks?

A high dividend stock is a stock with a high dividend yield. The dividend yield is an indicator of how much a company can expect to receive in dividends per year relative to its current share price. It can be calculated using the formula “expected annual dividend / share price x 100.

A dividend yield of over 3% is considered “high.

The average dividend yield of Japanese stocks is as follows.

The average expected dividend yield of stocks included in the Nikkei Stock Average is 1.91%, and the average expected dividend yield of all prime stocks and all standard stocks is about 2.35%. A dividend yield in excess of 3% is considered a high dividend payout level.

It is dangerous to jump into a stock just because it has a high dividend yield!

However, it is not a good idea to jump on a stock just because of its high yield.

The formula for calculating the dividend yield was “expected annual dividend / share price x 100. This means that there is a possibility that unpopular stocks or stocks with deteriorating performance are included, whose dividend yields are increasing due to a decline in stock prices.

If the company’s performance and finances deteriorate, not only will it not be able to increase dividends, but it may also be unable to maintain high dividends, resulting in a “dividend cut” or, worse, “no dividend”. If this happens, the share price will fall even further and the situation will be disastrous.

If you jump into high-dividend stocks based solely on the dividend yield, you may end up reducing your assets.

It is essential to check whether the company is performing well and whether its finances are sound.

Three key points for quickly selecting blue-chip high-dividend stocks

There are approximately 4,000 companies listed on the Japanese stock market.

If you do not want to spend too much time on this task, the following three points are recommended to find the best high-dividend stocks.

(1) Narrow down your search to dividend yields of “2% or more.

If you search for stocks with a dividend yield of “3% or more,” you will not be able to find “good” stocks with a dividend yield close to 3%. Stocks become more popular, the stock price becomes higher, and as a result, the dividend yield becomes lower.

Therefore, filter for dividend yields of “2% or more” and look for the best stocks among them. The dividend yield is only used as an initial filter, and other factors will be emphasized.

(2) Narrow your search to stocks with “consecutive dividend increases” or “status quo

Dividend increase means an increase in dividend per share from the previous year. Dividends tend to increase when performance is good and decrease when performance is bad. However, an increase in dividend does not necessarily mean that the company is doing well. However, it can at least be said that a stock that has increased its dividend every year for a long period of time is likely to be growing steadily.

Even if the company has not increased its dividend, if it has maintained a high dividend, it can be said that the company’s performance and management have been stable. If you search for stocks with dividend increases or dividend maintenance, you will be able to find promising stocks more easily.

(3) Dividend payout ratio should be 30-50%.

The “dividend payout ratio” is an indicator that shows how much of a company’s net income, which is its final profit, is distributed as dividends. It can be calculated by dividing the total amount of dividends paid out to shareholders by net income.

For example, if the dividend payout ratio is 30%, it means that 30% of net income is distributed to shareholders as dividends. A low dividend payout ratio means that less money is available for dividends, which means that less dividends can be received, but such a company may be saving its surplus in anticipation of the future.

On the other hand, a dividend payout ratio of 70-90% means that more of the company’s profits are being used to pay dividends than to invest in the company’s growth, which raises concerns about the sustainability and growth of the business. Although the average dividend payout ratio varies by industry, it is best to aim for a payout ratio of approximately 30-50%.

If your investment strategy is to receive stable, high dividends without aiming for price appreciation, choose stocks in recession-resistant industries with stable performance and stock prices.

Recession-resistant industries include food, pharmaceuticals, electric power and gas, railroads, and telecommunications.

36 high dividend stock funds eligible for the new NISA

In a nutshell, it may sound easy to select 10 to 20 high-dividend stocks with good performance and financial soundness to invest in, but in reality, it is not easy to select stocks.

However, it is not easy to choose the best stocks to invest in. You can also choose a “high-dividend stock ETF,” but mutual funds are convenient because they are easy to accumulate in monthly installments of 100 yen or more in one-yen increments.

According to the Mutual Fund Association of Japan’s list, there are 36 high dividend stock funds eligible for the new NISA as of July 29.

At the time of writing, only one fund, the Nikkei Stock Average High Dividend Yield Fund, is available for investment under the reserve limit. Funds that can be invested only in the growth investment framework are sorted in order of lowest trust fee.

In the paid version of [FRIDAY SUBSUKE], Mr. Yorifuji carefully selected 6 stocks from among 36 high dividend stock funds eligible for the new NISA, and published detailed explanations and comparisons.

FRIDAY Subscription] “[Real names of stocks revealed! Thorough comparison of “Japan High Dividend Funds” available for investment under the new NISA by a money professional” is here.