Investors Pocket Spreadtrum, Giant Dividends and Run

By newsdoug on September 27, 2011

Dividends fail to draw investors back to US-listed China stocks It’s going to take more than dividends and buy-backs to win investors back to China stocks, or at least that’s the message that markets are sending to online game operator Giant Interactive (NYSE: GA) and cellphone chipmaker Spreadtrum (Nasdaq: SPRD). Let’s look at Giant Interactive first, which raised investor wrath last month when it disclosed it had made investments in the insurance sector completely unrelated to its core online games business, and then forced out its CFO and offered a massive dividend worth more than 30 percent of its share price to try and make amends. (previous post) Its share moved up marginally when it announced the dividend, and then plummeted after it made the award on September 11, falling from $7.80 the day before it distributed the $3 per share award to a close of $4.61 afterwards. Since then, its shares have tumbled even further to its latest close of $3.48 per share, about a third of their 52 week high. Now the company has just announced a share buy-back, again with little affect on its price. (company announcement) Clearly investors are still not convinced that this company is anything more than the personal play toy of its chairman Shi Yuzhu, reflecting the broader credibility crisis facing US-listed China stocks. Spreadtrum’s case looks similar, though not quite as extreme. After successfully fending off a short-seller attack in June (previous post), the chipmaker has now announced it will award a modest quarterly dividend of 5 cents per American Depositary Share, equaling an annual yield of just 1 percent if it really keeps paying the dividend on a quarterly basis. (company announcement). Not surprisingly, shareholders greeted the news with indifference and perhaps even a little disdain, bidding Spreadtrum shares down marginally in Monday trade, even as the Dow and Nasdaq both rallied more than 2 percent. In Spreadtrum’s case the issue is clearly size, as the dividend is nearly meaningless even though the company itself looks strong. In Giant’s case much more fundamental issues are at stake, namely its lackluster position in the China’s tough online gaming space and its credibility in general. In both cases, investors are saying it will take stronger performance, and not just quick dividends, to win back their interest.

Bottom line: The dividend strategy from several US-listed Chinese companies is falling flat, with investors looking for stronger bottom lines before returning to these firms.

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