Meet the rare Dividend Aristocrat from Japan
Procter & Gamble and L'Oréal peer with 34 years of increased dividends
Personal Products maker Kao Corporation trading under ticker code 4452 on the Japanese stock market has hiked its dividend for 34 consecutive years. We dive into the company’s history, brands, dividend history and financials, also versus Procter & Gamble and L’Oréal.
Everyone knows the American Dividend Aristocrats, or the stocks that have increased their dividend every year for at least 25 years in a row. There are more than 100 of these true dividend champions in the United States. In Europe there are a lot fewer with less than 20 real Aristocrats who have increased the dividend for 25 years in a row or more.
What few people know is that there are also a few real Dividend Aristocrats listed on the stock exchange in Japan. We take a look at the surprising dividend champion from Japan, which has increased its dividend every year for more than 30 years in a row.
The company we are talking about, KAO Corp, is a peer of the much better-known (and performing, see chart above) American Dividend Aristocrat Procter & Gamble and the European dividend growth champion L'Oréal.
HISTORY AND BRANDS
KAO Corporation is active as a manufacturer of cosmetics and personal care products, comparable to L'Oréal from France and Procter & Gamble from the United States. Brands of KAO, which operates globally and generates more than half of its sales outside Japan, include Guhl, Attack, Bioré, Goldwell, Jergens, John Frieda, Kanebo, Laurier, Merries and Molton Brown.
Kao was originally founded in 1887 by Mr. Tomiro Nagase who started the company Nagase Shoten, a Western sundry goods dealer that would later become Kao. Mr. Nagase was determined to deliver quality products to as many people as possible and Kao has carried on his spirit of Yoki-Monozukuri, which means ‘good manufacturing’ for some 130 years now.
In 2023, Kao Corp, which is listed in Tokyo under the ticker code 4452, will be one of the largest companies in Japan with a market value of more than $21 billion, or 3.21 trillion yen. In 2023, a record revenue of 1.6 trillion yen was achieved by KAO, of which more than 12% came from the United States and more than 10% from Europe.
Kao is known for its phenomenal dividend history with now 34 consecutive years of increases. This is also fully in line with Kao's dividend policy, which is based on steady and continuous dividends. In addition, Kao also uses the cash flow to repurchase its own shares and invest in future development, such as capital expenditures and mergers and acquisitions.
Kao paid a total dividend of 150 yen for 2023 and aims to increase the dividend further in the next couple of years. On September 2, 2024, Kao already paid a record high interim dividend of 76 yen, so this means a final dividend of 76 yen will almost certainly be paid to shareholders next March, marking 35 consecutive years of dividend growth.
This plan is in accordance with Kao’s basic policy regarding distribution of profits and free cash flow. As a result, Kao will be aiming for the 35th consecutive fiscal year of increases in dividends in 2025.
Based on a stock price of 6 thousand 880 yen and an expected dividend of 152 yen per share for 2024 the dividend yield for Kao now is 2.2%. This compares to a 2.4% dividend yield for Procter and Gamble and a 1.8% dividend yield for L’Oreál as of October 22, 2024.
DIVIDEND COMPARISON (5 year CAGR)
Kao Corporation: +4.6%
L’Oréal: +11.4%
Procter & Gamble: +5.6%
Please note that dividend growth has been much stronger for both L’Oréal and Procter & Gamble in the last 5 and 10 years with L’Oréal being the clear winner in terms of annual dividend growth. Also KAO’s margins are much lower.
Key Financial Metrics for KAO
Forward P/E for FY 2024 (current fiscal year): 29.7
Return on Invested Capital (ROIC): 6.4% for FY 2023, expected to jump to 9.7% for FY 2024.
EBIT Margin: 5.7% in 2023 (vs. 19.9% for L’Oréal and 24.1% for Procter & Gamble)
Revenue Growth: 0.1% in 2023 to 1553 billion yen, expected to grow 3.3% for FY 2024 to nearly 1604 billion yen, with low single digits growth anticipated for 2025 and 2026
Balance sheet: Kao has a solid balance sheet with a net cash position at the end of 2023.
P/E Drop by 2027: The current P/E is expected to drop to 23.6 by 2026 based on analyst estimates.
Apart from Kao there is only 1 other stock from Japan with more than 25 consecutive years of dividend growth. We will discuss this investment in future articles on dividendhike.com so stay tuned and check back for more!
Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.