Since everyone else is focusing on the rapidly slowing growth in the latest quarterly results from leading Internet company Tencent (HKEx: 700), I thought I’d take a look at a less explored part of the company’s newly issued report, namely a dividend that it quietly boosted 36 percent. The sharp increase, at least on a percentage basis, reflects a broader effort among overseas-listed China tech and Internet firms to try to rekindle investor interest in their shares, as many start to see a rapid slowdown in growth with the maturation of their markets. Let’s look at Tencent first, which saw its fourth-quarter profit rise a modest 15 percent, not exactly impressive for a company whose annual profit rose 56 percent in 2010 and which saw triple-digit gains in many previous years. (results announcement; English article) Meantime, the company announced it was raising its annual dividend to HK$0.75 per share from HK$0.55 the previous year, a 36 percent increase. In terms of actual yield, investors will still get a modest 0.4 percent return from the dividend based on Tencent’s latest closing price. But still, any return at all would be a plus for holders of Tencent shares last year, which fell 10 percent amid a broader cooling in sentiment towards overseas-listed China tech stocks after a meteoric rise in previous years. Tencent’s boosting of its dividend comes as a growing number of US-listed Chinese tech and Internet firms have rolled out first-ever dividends, with a diverse range of names including chip designer Spreadtrum (NYSE: SPRD), online game operator Giant Interactive (NYSE: GA) and real estate service specialists Soufun (NYSE: SFUN) and E-House (NYSE: EJ) all announcing dividends starting last year in a bid to support their sagging share prices. Most of these companies are relatively cash-rich and the awarding of dividends is partly acknowledgement that they don’t need the money for operations, since most are already profitable, and most don’t plan to make any major acquisitions in the near future. Furthermore, none have indicated whether these dividends will become a regular occurrence, and I suspect many will quietly retire the policy if and when their share prices start to rebound. Still, Tencent’s latest moves do reflect a new reality setting in for an increasing number of tech firms, namely that growth could slow significantly in the next few years, causing investors to look elsewhere for excitement in a market full of other high-growth stories. As that happens, look for some of the biggest names, especially cash-rich ones like Tencent, to quietly boost their dividends, providing a stable if not very exciting source of returns for investors who don’t mind the slower growth.
Bottom line: A growing number of overseas-listed Chinese tech and Internet firms will offer dividends to attract investors as their profit growth slows.
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