Asia’s ageing population drives demand for dividends

With the US Federal Reserve now in gradual hiking mode, are dividend-yielding strategies still beneficial? The demographic trends in Asia, as well as globally, suggest they are.

30 March 2016

King Fuei Lee

King Fuei Lee

Head of Asian Equities (Singapore)

Global stockmarkets have been rocked by short-term volatility triggered by falling commodity prices and the start of the US Federal Reserve’s hiking cycle.

Despite the more dovish comments, the Federal Open Market Committee remains in hiking mode, with its expectation for two rate increases this year exceeding market pricing of one or less.

However, from a longer-term perspective, our views on Asian stocks have not changed.

We have maintained for a while that companies in the region will be impacted by the four Ds:

  1. Demographics
  2. Deflation
  3. Disruption
  4. Deleveraging

It is in the realm of demographics where we believe opportunities for dividend investors can be found.

Ageing demand for high yield

Investing in dividend-yielding stocks in a low-yield environment has become almost de rigueur for investors in search of returns in the current environment.

The conventional wisdom is that investors all over the world are seeking more lucrative alternatives to the low (or near-zero) interest rates that are being offered on bank deposits.

What is perhaps less well-understood is that a high dividend-yielding strategy is often also the preferred choice for an ageing population.

Behavioural economics

Although economics is often referred to as the “dismal science” for its inflexibility to relate to real-life human behaviour, the area of behavioural economics has shed light on a multitude of issues and has often been at the forefront of the most insightful observations about investor habits.

According to the behavioural life-cycle theory, an individual mentally breaks down their wealth into three components:

  • Current income
  • Current assets
  • Future income

At the individual level, the temptation to spend is always greatest for current income, and least for future income.

This is especially the case as people age and start to retire: they have a tendency to consume out of dividends received (or current income) rather than from capital gains (or future income).

As a result, these investors generally favour high dividend-paying stocks over those that pay lower dividends, which in turn has led to outperformance from the former.

And this is exactly what I discovered in a paper I published two years ago . I found a strong positive relationship between the long-term returns of dividend-yielding strategies in the US and the change in the proportion of older investors.

Effectively, the larger the increase in the proportion of older people in the general population, the greater the relative demand for high dividend-paying assets.

What does this mean for Asia?

Although most of the study was focused on the US, unsurprisingly the same kind of relationship is seen in most other international markets, including those in the Asia Pacific region.

It is particularly pertinent for countries such as Australia, Hong Kong and Singapore – the traditional bastions of Asian dividend-paying stocks.

Commentators often follow the market adage that dividend-yielding strategies are the “low-hanging fruit” in creating alpha (a measure which helps identify whether an actively managed portfolio has added
value in relation to risk taken) and that its time has passed as investors look elsewhere.

However, for long-term investors ruminating about what to buy in a deflationary world, where rock-bottom interest rates and ageing demographics are the norm, high dividend-yielding stocks are looking as ripe as ever for the picking.


  • Equities
  • Asia ex Japan
  • King Fuei Lee
  • Asia Pacific
  • Income

Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800.