Value Investing in China

Value investors are suppose to have greater opportunity of buying under-valued assets when market behaves irrationally, and is more susceptible to mass panic. China is one such market. To that extent, there is much opportunity for the shrewd value investor.

However, there are issues for value investors in the Chinese stock market too. One of them is the low dividend yield and pay-out ratio. If the average dividend yield, then something needs to be done to improve it.

Analysis is needed to answer 3 questions:

1. Is dividend payout ratios really that bad, compared to the prices at which the shares can be bought?For all listed companies, collect their yearly dividends since 2000, yearly low-price and high-price, and calculate (1) the low dividend yield; (2) the high dividend yield; and (3) compounded annual increases

2. If the dividend is low, is it because P/E ratios are too high, or pay out ratios are too low? For all listed companies, collect their yearly earnings, and calculate their yearly pay out ratio. 

3. If low dividend is to some extent caused by low dividend pay out ratios, is it justified by high internal rate of return from reinvested earnings? For all listed companies, collect the annual balance sheet account items, in particular the Owners' Equity section. Calculate the yearly return on owners' equity, as well as overall average return on owners' equity during the last decade. 

If it happens that there is low dividend yield, caused by low pay out ratios, then is that justified by the high return on equity and growth in earnings? If it is not justified, shareholders should seek higher pay out ratios.