Progress on the U.S.-China trade war has boosted Chinese stocks. Alibaba (NYSE:BABA) has broken out to a new all-time high, JD.com (NASDAQ:JD) has returned to mid-2018 levels and the iShares MSCI China ETF (NASDAQ:MCHI) has rallied nicely from August lows. All three are looking like great stocks to buy.
For some investors, however, there’s a catch: Few Chinese stocks pay a dividend. Income investors looking for stocks to invest in can get exposure to the region through a stock like Apple (NASDAQ:AAPL) or Starbucks (NASDAQ:SBUX). But, for those businesses — as with many American companies — China drives only a small portion of revenue and profits.
Nonetheless, income investors looking for dividend stocks to buy to capitalize on the Chinese market do have some options. Unsurprisingly, these names do have risk. Yet, they have real rewards, too — both in terms of dividends and the possibility of further appreciation if renewed optimism toward China persists.
So, let’s take a look at a few Chinese stocks to possibly get your hands on.
3 Dividend Stocks to Buy: Las Vegas Sands (LVS)
Casino operator Las Vegas Sands (NYSE:LVS) offers potentially the best combination of income and exposure to the Chinese economy. LVS hiked its dividend around 2.6% in 2020 in its third-quarter report, and now yields nearly 4.5% at the current price. That increase was the company’s eighth-consecutive annual raise.
However, despite its U.S. domicile, Sands’s results rely almost solely on Chinese demand at this point. Through the first nine months of 2019, nearly 60% of Adjusted Property EBITDA came from the company’s operations in the Chinese enclave of Macau. Nearly another 35% comes from the Marina Bay Sands property in Singapore — which too attracts Chinese gamblers.
As noted before, there are risks. Sands’ concession in Macau expires in 2022, and must be renewed. However, the odds of Sands failing to secure an extension are “remote,” as credit analyst Fitch put it earlier this year. Also, the thawing of the trade war is a big positive on this front; there was the chance that LVS chairman Sheldon Adelson, a prominent supporter of President Donald Trump, could get his company drawn into the proverbial crossfire.
But, as Fitch noted, it’s also possible that authorities could raise the tax rate or require other adjustments. Any “hard landing” in China could send profits tumbling. And, the dividend payout ratio is nearing 100% — meaning hikes going forward likely will be minimal.
Still, there’s a nice bull case here. Income investors should check out Wynn Resorts (NASDAQ:WYNN) as well, which raised its dividend 33% this year and yields 2.9%.
PetroChina (PTR)
PetroChina (NYSE:PTR) seems like the forgotten Chinese giant. It has the second-highest market capitalization among U.S.-listed companies based in China, behind only Alibaba. Yet, it receives a fraction of the coverage of other Chinese names.
Additionally, there’s an attractive combination of exposure to Chinese growth and dividend income. PTR shares are cheap, at barely 13x forward earnings, but — like LVS — there are risks.
Unlike most U.S. companies, PTR’s dividend is inconsistent in terms of its size and is only paid semi-annually. The yield based on 2019 distributions is over 4% and nearing 5%, but that may not be the case in 2020 — particularly with earnings declining of late. PetroChina needs oil prices to hold up, as well.
Income investors looking for consistency might look instead to names like BP (NYSE:BP) or Exxon Mobil (NYSE:XOM), the latter of which clearly has seen some support thanks to its dividend. Those looking to add growth or potential upside, however, might considering swapping out those established names for the higher-upside PTR.
China Mobile (CHL)
Shares of China Mobile (NYSE:CHL) already have bounced nearly 10% since hitting an 11-year low this month. They may rally further this week thanks to the so-called “Barron’s bounce”. That publication called out CHL stock as a cheap, yet dominant play this weekend — and made a strong case in the process.
After all, as Barron’s pointed out, China Mobile has 10 times the customers of Verizon Communications (NYSE:VZ) or AT&T (NYSE:T). And, like those U.S. giants, it has a 5G catalyst on the way. Yet, by any measure, it trades at a substantial discount to its American counterparts.
With a 4.5%-plus dividend yield, there’s a nice income case here as well. And, if CHL stock does rise too sharply this week, investors can also look at smaller rival China Telecom (NYSE:CHA).
Obviously, both Chinese telecommunications companies need their domestic economy to cooperate. But, if it does, the gains in both stocks in recent sessions could be the prelude to substantial upside in 2020.
As of this writing, Vince Martin has no positions in any securities mentioned.