Family-Owned Businesses: One More Reason Not to Neglect Emerging Markets

At the end of a year in which the U.S. handily led the world’s equity markets, many dividend investors find it hard to rouse any interest in emerging markets at all. “Why even bother?” seems to be the prevailing sentiment.

Our Dividend Signal Strategy® team looks at things quite differently. For one thing, the valuation disparity between U.S. and foreign equities is now so wide that it favors those overseas. But there’s a more fundamental point to be made: great dividend-paying companies can be found even in bad markets. In fact, bad news may be a plus if you’re seeking compelling values.

Companies vs. markets

To be sure, it’s essential to consider top-down factors such as political developments and currency risks when assessing a stock. But because our team is always scouring the markets for unique dividend-payers that are not widely analyzed, we tend to get more excited about appealing individual names than about broad market trends. That’s especially true when we see a strong emerging market company that is publicly listed and retains significant family ownership or control.

Why should family ownership be a recurring investment theme? We see some examples of publicly traded family businesses in the U.S. – think of Walmart and News Corp.—and even more in Europe. The family-run model is most common in Asia, where research has found it to be “an important pillar of Asian economies.”[1] According to a 2011 Credit Suisse study, family businesses account for 50% of all listed companies and 32% of market cap across 10 Asian countries. Moreover, listed family businesses outperformed local benchmarks in seven of those 10 countries between 2000 and 2010 with those in China, Malaysia, Singapore and South Korea showing the strongest performance.[2]

Implications for dividend investors

We’ve found that an ongoing family presence can contribute positively to a company’s dividend culture. Where families retain a controlling interest or have a significant minority stake, they generally want to keep paying themselves a dividend. Such companies seem to be more focused on long-term stewardship of the enterprise, more patient when investing in expansion projects and less inclined to boost short-term results through the use of leverage or accounting tricks. Family members are also more likely to object to questionable expenditures like over-the-top executive compensation or an ill-advised acquisition.

Interestingly, some studies suggest that dividend payout ratios tend to be somewhat lower when family members sit at the boardroom table. While some might wonder why this would be the case, we think it makes perfect sense. High payout ratios are usually unsustainable and may leave the company short of funds to invest in its future growth. In fact, research shows that companies that combine a relatively high dividend yield with a lower payout ratio (that is, one between 30% and 60%) have delivered the best total long-term returns in most markets.[3] It seems that family business stakeholders have recognized this sweet spot as well.

This is not to say that the benefits of family ownership override all other factors. Indeed, family dynamics occasionally get messy and in some markets it’s important to make sure the family’s politics aren’t a detriment to the company. Still, when we invest in a dynamic enterprise in which family members retain a significant interest, it only boosts our confidence that sound dividend policies will prevail.


Investing involves risk, including possible loss of principal. The value of any financial instruments or markets mentioned herein can fall as well as rise. Past performance does not guarantee future results.

This material is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product, or as an offer or solicitation with respect to the purchase or sale of any investment. Statistics, prices, estimates, forward-looking statements, and other information contained herein have been obtained from sources believed to be reliable, but no guarantee is given as to their accuracy or completeness. All expressions of opinion are subject to change without notice.

Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate fluctuations, social and political instability, less liquidity, greater volatility and less regulation.

There is no guarantee the companies in our portfolio will continue to pay dividends.

David L. Ruff is a registered representative of ALPS Distributors, Inc.

David L. Ruff has earned the right to use the Chartered Financial Analyst designation. CFA Institute marks are trademarks owned by the CFA Institute.

About Forward

The world has changed, leading investors to seek new strategies that better fit an evolving global climate. Forward's investment solutions are built around the outcomes we believe investors need to be pursuing – non-correlated return, investment income, global exposure and diversification. With a propensity for unbounded thinking, we focus especially on developing innovative alternative strategies that may help investors build all-weather portfolios. An independent, privately held firm founded in 1998, Forward (Forward Management, LLC) is the advisor to the Forward Funds. As of December 31, 2014, we manage over $5 billion in a diverse product set offered to individual investors, financial advisors and institutions.

1Credit Suisse Emerging Market Research Institute, Asian Family Businesses Report 2011, October 2011.
2Credit Suisse Emerging Market Research Institute, Asian Family Businesses Report 2011, October 2011.
3P.N. Patel, Y. Souheang & R. Carlson, “Global Dividend Strategy,” Credit Suisse Quantitative Equity Research, December 31, 2011.

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