With regards to the comprehensive capital cycle, concentration, profitability, and capital expenditure are three indicators that, as the capital cycle progresses from the growth phase to the mature phase, are boosted along with dividend yields.
According to a research report released by Guosen Securities on the positioning of the entire SW Level 2 industry lifecycle (in both 2023 and historical intervals from 2008 to 2024Q1), as industries progress from the startup phase to the growth phase, experience clearing, and transition to maturity and decline phases, the regulation of average dividend yield increases is effective regardless. By taking the integration of profit growth rate, capital expenditure growth rate, and HHI reduction to represent the development process from the early to mid-late stages of the lifecycle, it can be seen that the coal, banking, and communication industries, among others, have been in the stage of transitioning from growth to maturity in recent years, and their dividend yields have improved accordingly.
Guosen Securities' main points are as follows:
As the time and space of a company's lifecycle are extrapolated, the dividend yields of industries show a "step-up" pattern.
According to Guosen Securities, taking the positioning of the entire SW Level 2 industry lifecycle into account (in both 2023 and historical intervals from 2008 to 2024Q1), as industries progress from the startup phase to the growth phase, experience clearing, and transition to maturity and decline phases, the regulation of average dividend yield increases is effective regardless. In clearing-stage industries where profits have more advantages over capital expenditures when considered separately, the dividend yield tends to be higher than in the startup and growth stages; in terms of concentration indicators considered separately, as the industry progresses in accordance with the industry lifecycle, the trend for dividend yields to decrease as industry concentration increases emerges.
With regards to the comprehensive capital cycle, concentration, profitability, and capital expenditure are three indicators that, as the capital cycle progresses from the growth phase to the mature phase, are boosted along with dividend yields. By taking the integration of profit growth rate, capital expenditure growth rate, and HHI reduction to represent the development process from the early to mid-late stages of the lifecycle, it can be seen that the coal, banking, and communication industries, among others, have been in the stage of transitioning from growth to maturity in recent years, and their dividend yields have improved accordingly.
From a global perspective, the high dividend industry characteristics are consistent with the domestic ones (including energy ii, banks, insurance ii, and transportation), which conform to the characteristics of industry lifecycles.
According to Guosen Securities, from the perspective of profit YoY and the Capex/D&A ratio, the banking and insurance industries exhibit obvious characteristics of maturity. Their rebounding profits and reduced capital expenditures match their long-term high dividends. Energy and transportation have slightly higher Capex growth rates than profit growth rates, showing characteristics of the end of the mature stage. The major global high dividend industries have experienced an upward trend in concentration over the past 5-10 years. As the dominance of leading enterprises increases, it represents the industry's transition from competition to maturity, which is consistent with the high dividend characteristics in the later stages of the capital cycle.
Similar to the industrial capital cycle, the dividend yield of the economic system also has the feature of higher dividends in later cycle periods, and the stock dividend yield of catch-up economies in earlier economic cycles is thinner than that of mature economies. In the same industry, the highest dividend yield level in developed markets is relatively higher than that in emerging markets. The dividend yield of various industries in a country has a relatively consistent level, and its position in major global economies is similar.
From a long-term perspective, it is important to grasp the industrial context of the capital cycle to explore potential high dividend industries and avoid the dividend trap industries.
Guosen Securities suggests seeking out industries where the current dividend yield is on the rise and poised for future growth, while also avoiding industries where the current dividend yield has peaked and is expected to decrease in the future. With an analysis of the capital cycle context in mind, industries with potential for rising dividend yields are mainly in the Stage I Maturity phase, and include oil service projects, general equipment, commercial vehicles, education, textile manufacturing, trinkets, planting industries, pharmaceutical commerce, optics optoelectronics, advertising marketing, and environmental governance. Industries that are currently in the Stage II Maturity phase have stable dividend yields, such as joint-stock banks and home appliances, while industries that are at the beginning of a declining industrial cycle may not support long-term dividends due to instability in future cash flows and earnings, such as city commercial banks. This logic involves not only changes in industry structure, but also the maturity of profit paradigms and optimization of supply-side after clearing.
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