Yesterday evening, news about “the dividend tax to be paid by mainland individual investors to invest in Hong Kong stocks may be considered for reduction” spread rapidly in the industry. However, according to the Shanghai Stock Exchange, the Hong Kong Stock Exchange did not comment on this.

Stimulated by this news, the Hong Kong stock high-dividend concept stocks exploded collectively today. Banks, insurance, the three major operators, and “three barrels of oil” all ushered in a sharp rise. Among them,$CCB (00939.HK)$,$CHINA SHENHUA (01088.HK)$An increase of more than 6%,$ICBC (01398.HK)$,$PETROCHINA (00857.HK)$,$CITIC BANK (00998.HK)$An increase of more than 4%.

Judging from the high dividend list, the increase in Hong Kong high-yield stocks has also been quite impressive since this year. Among them,$COSCO SHIP HOLD (01919.HK)$The cumulative increase is nearly 50%,$CHINA SHENHUA (01088.HK)$,$YANKUANG ENERGY (01171.HK)$,$CITIC BANK (00998.HK)$Up more than 30%,$BANK OF CHINA (03988.HK)$,$SINOPEC CORP (00386.HK)$,$BANKCOMM (03328.HK)$,$CCB (00939.HK)$Up more than 20%,$ICBC (01398.HK)$,$HSBC HOLDINGS (00005.HK)$Waiting for an increase of more than 15%.

What do you think of the subsequent market?

On April 12, the State Council issued “Certain Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Capital Market” as the third “National Nine Rules” for the capital market. Currently, high-dividend concept stocks are still being stimulated by the “National Nine Rules” policy announced earlier.

This opinion emphasizes the supervision of cash dividends from listed companies. For companies that have not paid dividends for many years or that have a low dividend ratio, measures will be taken to limit the majority shareholders' holdings reduction and implement risk warnings. This policy aims to enhance the stability, sustainability and predictability of dividends from listed companies, and to encourage companies to implement multiple dividends, pre-dividends, and dividends before important holidays, so as to better return investors.

However, Hong Kong stock high-dividend concept stocks can often provide stable cash dividends. Analysts said that as a direct return from listed companies to investors, cash dividends can enhance investor confidence, cultivate investors' long-term investment concepts, and enhance the image of listed companies.

Furthermore, CICC believes that if the Hong Kong Stock Connect dividend tax relief is implemented, it is expected to further boost the enthusiasm of mainland investors to invest in Hong Kong stocks, especially in high-dividend-related sectors, boost sentiment in the short term, and help improve the liquidity of the Hong Kong stock market in the long term.

Dongwu Securities believes that if the proposal is implemented, the southbound trading channel will be further broadened, and the southbound trading sentiment may increase. At the same time, lowering the southbound dividend tax is also expected to strengthen enthusiasm for investing in high-dividend assets in Hong Kong stocks.

Lyon published a report stating that if the proposal is implemented, it is believed that the dividend yield gap between A shares and H shares will narrow. H-share bank shares will be the main beneficiaries because their dividend rates are very attractive, and state-owned banks with the highest dividend rates will benefit the most. Lyon is still optimistic about CCB, which has a large dividend ratio gap between A shares and H shares. The dividend gap between H shares and A shares is 2.7 percentage points; they are also all optimistic about ICBC. The spread between H shares and A shares is 2.1 percentage points.

Bloomberg analyst Marvin Chen said the move will have a “positive” impact on the Hong Kong market, help maintain southbound capital flows, and support high-dividend industries such as energy and utilities.

Furthermore, it is worth mentioning that the recent layout of southbound capital has returned to high-dividend assets in Hong Kong stocks:

(1) Today, net southbound capital purchases$BANK OF CHINA (03988.HK)$,$CHINA MOBILE (00941.HK)$,$ABC (01288.HK)$Received net purchases of HK$904 million, HK$841 million and HK$632 million respectively;

(2) In the past 7 days, Southbound Capital made a net purchase of HK$4.719 billion from the Bank of China.$ABC (01288.HK)$,$CHINA SHENHUA (01088.HK)$, China Mobile,$ICBC (01398.HK)$,$CCB (00939.HK)$Net purchases of HK$632 million, HK$592 million, HK$521 million, HK$293 million and HK$249 million were respectively.

(3) In the past 3 months, Southbound Capital has also exploded the Bank of China's purchase of HK$19.226 billion, a net purchase of China Mobile,$CNOOC (00883.HK)$,$CHINA TELECOM (00728.HK)$,$PETROCHINA (00857.HK)$They were HK$11.381 billion, HK$8.759 billion, HK$2,128 billion and HK$1,739 billion respectively.

How to choose high-dividend stocks?

CICC said that in selecting targets, the focus is on dividend potential and balance sheets, rather than simply dividend rates. High dividends and high dividends may seem like the difference between the words, the meaning and logic are different. High dividends may be the result of low stock prices rather than actual dividend capacity, such as real estate and finance. Instead, high dividends value continuous and stable dividend capacity, so cash flow and balance sheet quality are also important considerations.

CICC suggests starting from the three dimensions: 1) profitability (free cash flow); 2) dividend capacity (dividend ratio, net cash, balance sheet status); and 3) willingness to pay dividends (such as assessment and regulatory requirements for state-owned enterprises).

Furthermore, market opinions also believe that the core of a high dividend strategy lies in the dividend rate, that is, selecting listed companies with stable cash flow, long-term continuous cash dividends, and high dividend ratios as investment targets. Generally speaking, a company with high dividend characteristics must meet the following three conditions:

1. Strong profitability, which is a prerequisite for high dividends; 2. Business expectations are good; otherwise, the company will not pay large dividends; 3. The valuation is reasonable; otherwise, even if there are many cash dividends, the dividend rate may be low.

However, the premise for continued high dividends is that the company's fundamentals are stable. As an important pillar of the national economy, central enterprises have stable fundamentals and continuous dividend capacity. Based on the above, the market believes that “Hong Kong equities+central enterprises+dividends” is probably the better choice.

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Editor/Somer