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3 Rising ‘National Champions’ With Growing Dividends To Buy

To move up the value ladder and gain more prestige, China’s government has a goal of fostering the creation of ‘national champions’ or leading domestic companies that can compete toe-to-toe with foreign companies in China.

In China’s hybrid economy where the government plays a substantial economic role, even implicit government support can mean a lot for a company. The status of being perceived as a ‘national champion’ can lead to more consumer demand, greater brand loyalty, and lower costs of capital, all of which are good for a company’s dividend fundamentals.

Given that being perceived as a national champion is good for a company’s dividend fundamentals, here are three potential ‘national champions’, ANTA Sports Products Ltd (SEHK: 2020), BYD Co Ltd(SEHK: 1211), and Tencent Holdings Ltd(SEHK:700) that pay a dividend too.

Anta Sports in sports apparel

Anta Sports is the largest domestic sports apparel maker in China’s US$43 billion sports apparel market. The company is also growing fast, with sales rising 40.3% year-on-year and profit attributable to equity shareholders soaring 27.7% for the interim period of 2019.

Given that Xi Jinping wore Anta Sports apparel in a state aired 2017 TV segment, Anta Sports can count on many government employees and their families as consumers. As a perceived national champion, Anta Sports benefits from more access to capital as many Chinese investors have bid the stock up since the TV segment in the last two years.

In addition to a rising stock price, Anta Sports also pays a dividend with a forward yield of around 0.8% at current prices. Although the company’s dividend isn’t growing every year as it did from 2014 to 2017, Anta Sports’ dividend cut isn’t due to any significant financial difficulties. Instead, Anta Sports has used its cash flow to partly finance share purchases of international sports apparel companies such as Finland’s Amer Sports. If successfully integrated, the purchases should help Anta Sports’ dividend grow in the long run.

Source: Anta Sports annual report 2018

BYD in electric vehicles and batteries

Leading in cutting-edge green energy is a top priority of the Chinese government given the country’s pollution problem. As China’s largest domestic EV maker and number two auto-battery maker, BYD is perceived by many investors as a ‘national champion’ in EVs and batteries.

Although BYD sales have recently weakened due to the rollback of subsidies, BYD has tremendous growth potential. China’s EV market is expected to grow by multiples over the next two decades as the country transitions to a greener future.

Given that the electric vehicle and EV battery markets are in their early growth phases, BYD doesn’t pay much of a dividend yet. BYD stock currently has a forward dividend yield of 0.61%. Although BYD might cut its dividend or suspend it completely if EV industry conditions get worse, the investment case for BYD as a perceived national champion that will benefit from the secular rise of EVs still stands.

Tencent in AI

In artificial intelligence, data and financial resources matter. Given that most people in Mainland China use Tencent’s WeChat and the company has an enormous market capitalization, Tencent is in a good position to lead in the critical sector of artificial intelligence.

In addition to using AI to better show ads, Tencent has deployed AI in the cloud and through chatbots. In the future, Tencent aims to use AI to win more market share in China’s soon to be trillion dollar healthcare sector. The company is also researching the potentially lucrative field of autonomous driving.

Given that Tencent paid a dividend of HK$1 per share in 2018 and the tech company trades for around HK$378 per share, the stock isn’t exactly a high yielder. While its dividend per share isn’t great, Tencent has increased its dividend every year from 2014 to 2018. If Tencent keeps up the dividend growth, Tencent could generate attractive dividend income in the future.

Tencent Dividend per share (DPS) $HK

2014 2015 2016 2017 2018
0.36 0.47 0.61 0.88 1

Foolish conclusion

Anta Sports, BYD, and Tencent each benefit from being perceived as ‘national champions’ by many investors. As a result, they have a competitive advantage that makes their dividends even more attractive.

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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.