High Dividend Stocks: Correction Offers Buying Opportunity?

• News
• 2024-10-02

Overseas stock markets have plummeted, significantly dragging down the strong stocks from the first half of the year, among which the high-dividend leading stocks such as China National Offshore Oil Corporation (CNOOC) (00883.HK) and China Shenhua Energy Company Limited (01088.HK), which led the market in the first half, have once accumulated adjustments of over 20%.

Since peaking on May 29th, products like the Hang Seng Dividend ETF (159691) have also once accumulated a nearly 20% pullback, and the situation with high-dividend concept stocks in the A-share market is similar, with resource stocks experiencing a larger adjustment.

Industry insiders believe that the adjustment of resource stocks is mainly due to the expectation of a global economic recession, following the adjustment of foreign markets with a larger amplitude. However, in the long term, the restrengthening of the Chinese yuan and the weakening of the US dollar are major trends, and global central bank interest rate cuts are also beneficial to commodity prices and the performance of related high-dividend individual stocks. Additionally, high-dividend stocks in other industries are also worth paying attention to, with expectations of better growth potential.

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Recession expectations trigger adjustments.

Wen Tianna, CEO of Broad Capital International, told First Financial Daily reporters that the global market adjustment and the rate cuts by central banks worldwide have led investors to sell stocks from a risk-avoidance perspective. When the market fluctuates, some commodity energy stocks also follow and undergo certain adjustments.

Mou Yiling, an analyst at Minsheng Securities, stated that the current marginal weakening signals of domestic and international demand, combined with the "Trump trade," have led to a significant retreat in market expectations for physical demand, resulting in the pullback of related resource stocks. "But the market has only seen marginal changes and has not considered that the decline in commodity prices, along with the retreat of interest rates, will actually cause the demand that was previously suppressed by high prices and high interest rates to begin to be released. The global entry into a new round of easing cycle is actually more beneficial for the continuation of corporate investment and production activities." He said.

The market is concerned about whether the adjustment of overseas markets will have a negative drag on A-shares. In response, Qu Xiongfeng, an analyst at Jianghai Securities, believes that the overall impact is limited.

In his view, the most important factor affecting the current market is the market's expectation for the recovery of the domestic economy. "Considering the continuous efforts of policies, such as the central bank's interest rate cut on July 22nd, and the release of about 300 billion yuan in ultra-long-term special treasury bond funds by the Development and Reform Commission and other departments on July 25th, to support large-scale equipment updates and consumer goods exchange policies, we maintain a relatively optimistic attitude towards the next market." He analyzed that the expectation of the Federal Reserve's interest rate cut has further strengthened, which is also beneficial for the downward trend of domestic risk-free interest rates, thereby enhancing the high-dividend-driven dividend investment logic. Although the relative trading style performance is weak, the trend of downward risk-free interest rates has not changed in the medium term, and the high-dividend-driven dividend investment logic has not changed. Adjustments will bring better investment value.

"The conditions for the peak of dividends (high dividends) are not fully met at present, but the trading congestion is high." Deng Lijun, a strategy analyst at Huajin Securities, said that the short-term rebound of A-shares is not over, but it is still a volatile market, and the dividend industry is still worth configuring: First, when economic and profit expectations are weak, low valuation dividends are superior. Historically, high dividends are relatively superior when the strength of profit repair and the stock market are both weak. At present, the economy and the stock market are both in weak repair, and at the same time, the decline in real estate and long-term bond yields lead to asset scarcity. Under this background, large funds may increase the proportion of low valuation, stable high-dividend asset configurations.

The strengthening of the Chinese yuan brings layout opportunities.Wen Tianna stated that when the US dollar undergoes adjustments and the Chinese yuan continues to strengthen, the aforementioned resource stocks still have a certain value in allocation.

Guangdong Huanruitianze Fund Manager Mo Xiaocheng told reporters from Yicai that he continues to be optimistic about the market in 2024. Currently, value investing is still challenging, and investors need to discern high-dividend stocks. Some stocks have high dividend rates but lack growth potential. "For example, banks have had high profits for many years, but their returns are not ideal in an environment of declining interest rates," he said. He believes that the appreciation of the US dollar has almost come to an end, and in the long term, the US dollar will weaken, the Chinese yuan will appreciate over the long term, and it may even break historical highs in the next few years. Commodity prices will also rise over the long term, and resource stocks are worth laying out after adjustments. In other industries, one should be more optimistic about those with high dividends and growth potential, such as some stocks in the pharmaceutical industry.

Everbright Securities analyst Zhao Naidi said that the low-interest-rate environment in 2024 is expected to continue, and he remains optimistic about high-dividend assets represented by the "three barrels of oil." Over the past three years, international crude oil prices have experienced significant fluctuations, but the volatility of oil prices does not change the company's high dividend characteristics.

Xingye Securities strategist Zhang Yidong said that even considering the dividend tax, the dividend rate of the Hong Kong dividend sector is still very attractive. The dividend rate of the Hang Seng Hong Kong Stock Connect High Dividend Low Volatility Index exceeds 7%. In addition, core assets represented by internet giants actively repurchase and increase dividend payments, making their "dividend + repurchase" yield has risen to about 5%.