Source: Zhitong Finance

Japanese companies are increasing dividends and share buybacks at a record rate to support a market on the brink of adjustment.

Fumio Matsumoto, chief strategist at Okasan Securities, said that 53% of the companies that announced earnings before May 10 announced plans to increase their dividends this fiscal year.

The Tokyo Stock Exchange pressured companies to improve capital efficiency and valuations, so a large number of companies increased their dividends to shareholders. They also helped spur the TSE index to rebound after falling nearly 10% from its March high.

Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said, “The company is taking action.” “Investors are welcoming this.”

Dividends are rising at a record rate

Stock buyback announcements also reached an all-time high. According to Goldman Sachs Group data, Japanese companies announced 1.2 trillion yen (7.7 billion US dollars) share repurchases in April, setting a record for the first month of this fiscal year.

Among them is ITOCHU Corporation, whose stock price soared after the trading company announced that it would buy back approximately 150 billion yen of shares. Stock prices also rose after real estate developer Mitsui Fudosan and industrial electronics manufacturer Hitachi announced share buybacks.

Bruce Kirk, chief Japanese stock strategist at Goldman Sachs, wrote: “This indicates that fiscal year 2025 will be another record year for announcing buybacks.”

Shareholder returns partially offset the disappointment brought about by the company's cautious profit expectations. According to Sumitomo Mitsui Nikko Securities, TSE's constituent stocks expect a net revenue increase of only 0.8% for the current fiscal year.

Traditionally, Japanese companies give careful performance guidance at the beginning of the fiscal year, so many investors expect their performance to be revised upward over time.

Investors favor dividend increases combined with long-term capital plans such as increasing overall dividend rates. Neuberger Berman East Asia senior vice president Kei Okamura said that this provides a clearer long-term outlook and is beneficial to stock prices.

“For analysts and investors, share buybacks are a difficult factor to include in their (valuation) model, but if they change their dividend policy, then they can be included in your model, so we can better understand the situation,” he said.

This week is the final stage of Japan's earnings season, and most companies will announce their results by Wednesday.