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Alibaba’s Successful Debut in Hong Kong Benefits These 3 Dividend Stocks

Alibaba’s Hong Kong debut doesn’t just benefit Alibaba. It will likely help these 3 dividend stocks too.

In November, Alibaba Group(NYSE: BABA / SEHK:9988) successfully debuted in Hong Kong, with its stock price going up both in New York and in the former British territory.

Not only did Alibaba’s valuation increase, but also Alibaba gained valuable capital to expand.

Alibaba’s successful debut in Hong Kong will likely lead to more Chinese companies following the e-commerce companies’ footsteps.

Chinese companies listing in Hong Kong is good news for companies that operate in the capital markets, some of which pay attractive dividends. Three companies, Hong Kong Exchanges and Clearing Limited(SEHK: 388), China International Capital Corporation Limited (SEHK: 3908), and CITIC Securities Co Ltd (SEHK: 6030) will likely benefit from the trend.

Hong Kong Exchanges and Clearing Limited

If Chinese companies ‘come back home’ to Greater China and list from overseas, many will choose Hong Kong due to its well established capital markets and deep institutional investor base.

As a monopolistic stock exchange in Hong Kong,Hong Kong Exchanges and Clearing Limited or simply, HKEX, will benefit from the trading that the stocks that ‘come home’ generate. More trading means more fees for the exchange. More fees for the exchange means more cash flow to support and potentially raise the dividend.

HKEX also benefits from another trend. In addition to benefiting from Chinese companies ‘coming back home’, HKEX also benefits from Chinese stocks’ increasing inclusion in foreign indexes such as that of the MSCI Emerging Markets Index. The increasing index inclusion will attract more foreign inflows and generate more arbitrage trading activity.

In terms of its dividend history, HKEX has a relatively solid one. The exchange has raised its dividend four out of the last five years from 2018, and it currently has a forward dividend yield of around 2.9% at the current price.

Dividend payout in $HK for respective financial years

2014 2015 2016 2017 2018
3.98 5.95 4.25 5.4 6.71

For the financial year 2019, HKEX’s interim dividend of HK$3.72 was higher than its interim dividend of HK$3.64 for 2018.

China International Capital Corporation Limited

China International Capital Corporation Limited or CICC is one of China’s leading domestic investment banks.

CICC benefits from Alibaba’s listing because the bank helped underwrite the Hong Kong IPO. As an underwriter, CICC will receive part of the US$28.1 million in underwriting fees generated from the listing not counting the fees generated from the over-allotment option. Although US$28.1 million doesn’t sound like much, CICC will be in a good position in the future to benefit from any secondary offerings, spin offs, and other capital market activities that Alibaba might do in Hong Kong. As an underwriter for a prestigious offering, the company will be in a good position to win underwriting business from other Chinese companies that choose to list in Greater China as well.

Currently, CICC pays a forward dividend yield of 1.23% at current prices. For 2018, CICC’s earnings per share of HK$0.945or CNY0.83that more than covered its dividend per share (DPS) of HK$0.18.

CITIC Securities Co Ltd

As the largest brokerage house in Mainland China, CITIC Securities Co Ltd will also stand to benefit from Alibaba’s Hong Kong listing. Although it didn’t participate in Alibaba’s November 2019 listing, the company will be in a good position to gain from expanding trading fees.

As China’s economy grows and its capital markets become more developed, CITIC Securities’ sales and profits could grow with it.

CITIC Securities has a forward dividend per share (DPS) of HK$0.40 and a forward dividend yield of 2.3% at current prices.

Foolish conclusion

Alibaba’s listing in Hong Kong isn’t just good news for the e-commerce giant. It also benefits Hong Kong’s stock exchange and local capital market players by potentially bringing in more Chinese companies to list back in Greater China and larger securities trading volume.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.