Japan For Dividends! No Kidding.

There is a futures market for Nikkei 225 dividends, just like there is one for the S&P 500. Look who the Street expects to cut more.

I don’t often refer to the price-weighted Nikkei 225, but let’s use it because of the dividend futures. It yields a tad more than the S&P 500. Not shown is MSCI Japan, which is market capitalization weighted. It yields 2.75%.

Dividend payout ratios are exactly the same. Both the S&P 500 and the Nikkei 225 pay 42 cents in dividends for every one dollar earned.

But people think US stocks grow earnings faster because Japan is lethargic. This chart surprises a lot of people.

Let me show you the two profitability measures, ROA and ROE. The S&P 500’s ROA is 2.82%, not much different from the Nikkei’s 2.53%. One way to get ROE higher is to take on more debt…

…and that’s what US firms have done. Yes, the S&P 500’s return on equity (ROE) is higher – because US firms have debt; Japanese firms have cash.

Here’s one you saw in my tweets on MSCI Japan. The US is in the tight liquidity position, not Japan.

Japan has more cash, less leverage, more yield and historically faster earnings growth. Contrarians take note.