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

The New NISA, which has been revamped since 2024, is a system where taxes on investment income such as dividends, distributions, and capital gains are zero for a lifetime. The ‘lifetime’ tax-free status for investment income has made ‘high dividend stocks’ popular.

Through the New NISA, investing in bond funds, bond ETFs, REITs, REIT funds, and REIT ETFs allows you to receive regular cash flow from distributions. However, if you want to receive regular cash flow while aiming for capital gains, high dividend stocks are better.

Many people have started investing using the New NISA since its launch in 2024.

The market rose steadily in the first half of the year, but in August 2024, it experienced its first major crash. This was due to accelerated yen appreciation following additional interest rate hikes by the Bank of Japan, along with concerns about a potential slowdown in the US economy.

Nevertheless, even in a declining market, high-quality high dividend stocks tend to provide stable dividends, leading to increased demand from investors during downtrends. They are strong against overall market declines and tend to recover from downturns faster.

In this article, we will thoroughly compare ‘Japanese High Dividend Stock Funds,’ which offer easy diversification with just one investment.

How Can You Receive Dividends?

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

To receive dividends, shareholders must hold their shares until a specific date, known as the “Ex-Dividend Date.” If you hold shares on this date, you will be eligible to receive dividends and shareholder benefits. The actual receipt of dividends occurs about 2 to 3 months after the Ex-Dividend Date, starting from the “Record Date,” and can be withdrawn as cash at that time.

The day after the Ex-Dividend Date is called the ‘Ex-Dividend Day.’ From this day on, you can still receive dividends even if you sell the stock.

In reality, the Ex-Dividend Day tends to see investors selling stocks, which makes stock prices more likely to fall. Conversely, leading up to the Ex-Dividend Date, investors tend to buy stocks, making prices more likely to rise.

 

What Are High Dividend Stocks?

High dividend stocks refer to stocks with high dividend yields. The dividend yield is an indicator of how much dividend income you can receive annually relative to the current stock price. It can be calculated using the formula: “Annual Expected Dividend ÷ Stock Price × 100.”

A dividend yield above 3% is considered a “high dividend.”

For reference, the average dividend yield of Japanese stocks is as follows.

The average expected dividend yield for stocks included in the Nikkei Stock Average is 1.91%, while the average expected dividend yield for all Prime and Standard stocks is about 2.35%. It is understandable that a dividend yield over 3% is considered a high dividend.

 

Beware of Focusing Solely on High Dividend Yields

However, it is not advisable to jump at high yields alone.

The dividend yield formula is ‘Annual Expected Dividend ÷ Stock Price × 100.’ This means that if the stock price falls, resulting in a higher dividend yield, there is a possibility that the stock may be an unpopular one or a company with deteriorating performance.

If performance and finances deteriorate, not only might the company be unable to increase dividends, but it might also face ‘dividend cuts’ or, in the worst case, ‘suspension of dividends.’ This would further decrease the stock price and lead to a disastrous situation.

Focusing only on dividend yield and jumping at high dividend stocks could lead to a reduction in your assets.

It is essential to check whether the company’s performance is strong and its finances are sound.