Shanghai Stock Exchange Develops Dividend Indices And Advocates Value Investing - Serial Report (X) On Implementing Scientific Development Of Securities Market.

With the continuous development of the Chinese capital market in recent years, the supports provided by the stock market for the real economy have been strengthened. A lot of state-owned enterprises have been revitalized after their listing, while numerous private companies have also got precious direct financing channels in the capital market. While developing themselves in the capital market, listed companies should attach importance to giving rational return to investors, so that the latter could share fruits in the development of enterprises, which is a key factor for the sound development and long-term sustainable growth of the capital market.

Since 2001, the China Securities Regulatory Commission (CSRC) has successively worked out relevant regulatory measures, and established and perfected the cash dividend distribution system in according with financing needs, in addition to cementing information disclosure for improving transparency of the cash dividend distribution of listed companies. On May 9, 2012, the CSRC promulgated the "Notice of Further Implementing Relevant Issues for Cash Dividend Distribution of Listed Companies", with an aim of guiding listed companies to perfect the decision-making mechanism of dividend distribution and meet requirements for the information disclosure of dividend distribution. It is also a key content for the construction of the blue chip market of the Shanghai Stock Exchange (SSE) to boost the construction the dividend distribution of listed companies and enhance listed companies' capabilities of returning to investors. The SSE will work out relevant polices in the near future to intensify the regulation on information disclosure of cash dividend distribution.

The SSE-listed companies' dividend distribution has been improved steadily.

Recent years have witnessed a steady improvement in the dividend distribution of the Shanghai stock market as listed companies' continuous dividend distribution abilities, dividend rates, dividend payment rates and others have been on a good track.

Statistics from 2004 shows that by the end of 2011, the numbers of the SSE-listed companies distributing cash dividend for 2 and 5 consecutive years or above and 8 consecutive years had reached 388, 246 and 158, respectively. Besides, the above listed companies related to dividend distribution were steady, as 91% of the 364 listed companies distributing cash dividend for 2 consecutive years or above by 2010 still could distribute dividend in next year.

Listed companies' dividend rates changed according to the fluctuation of stock prices. The data of 2011 shows that the numbers of the SSE-listed companies with their dividend rates more than 1%, 2% and 3% were 170, 42 and 17, respectively. Over the latest 3 years, all the dividend rates under the weighted total issued shares in the Shanghai market have exceeded 1.6%.

In the whole year of 2011, the SSE-listed companies distributed cash dividend of RMB321.3 billion in total to A-share investors, accounting for 84% of the total distributed dividend of A shares. At 2012, they continuously performed the responsibility of dividend distribution. According to the annual reports of 2011, 553 out of the SSE-listed companies put forward cash dividend distribution schemes, with the cash dividend of RMB339.4 billion in total planned to be distributed to A-share investors, accounting for nearly 30% of the A-share-related total net profit of the SSE-listed companies on the very year.

The development of dividend indices is a key way to guide listed companies' dividend distribution.

Owing to the emerging indexation investment, stock indices have drawn more attention in the market gradually. By taking dividend thematic indices as the carrier, the stocks boasting strong intentions of dividend distribution and high capabilities of dividend distribution have been listed into indices. Moreover, index products such as ETFs have been developed on the basis of dividend indices. All this could encourage listed companies to distribute dividend. Therefore, the development of dividend indices is an effective way for boosting the dividend distribution of listed companies and enhancing the quality of dividend distribution.

In the US market, dividend thematic investment has become a major investment strategy, so the investors pay much attention to the listed companies with high dividend distribution. The ETF products rapidly growing in recent years have taken dividend indices as crucial investment targets. According to latest statistics, among the ETFs traded in the US market, the number of the dividend-index-related ETFs has reached 52, with the total managed assets up to USD50 billion. The soaring growth of the dividend-oriented investment products will contribute to propelling the dividend distribution of listed companies.

The SSE early attached importance to the role of dividend thematic indices in driving the dividend distribution of listed companies. As early as January 4, 2005, the SSE released SSE Dividend Index, and selected 50 kinds of stocks with high dividend rates, large market capitalization and ample liquidity in the Shanghai market as constituents. Furthermore, the ETF product with SSE Dividend Index as the tracking target was released in 2006 and was taken as the target of margin trading and securities lending in 2011. With the number of the SSE-listed companies distributing dividend increased and the dividend distribution of the SSE-listed companies improved, the conditions for compiling and developing more dividend indices have been met as well. The SSE, by focusing on the construction of the blue chip market and the concept of value investing, plans to continuously develop dividend indices and guide listed companies to perform the responsibility of dividend distribution by market-orient means.

Blue chip series and actual controller series dividend indices will be released soon.

Upon previous study, the SSE will initially two series of dividend indices. One is SSE Blue Chip Series Dividend Indices, including SSE 180 Dividend Index and SSE 380 Dividend Index. The other is SSE Actual Controller Series Dividend Indices, including SSE State-owned Enterprise Dividend Index, SSE Central State-owned Enterprises Dividend Index, and SSE Private Enterprise Dividend Index.

The market structure, characterized by the 3 boards of typical companies with blue chip shares, rising companies with blue chip shares, and promising companies with blue chip shares, has been built by the SSE so far. SSE 180 Index and SSE 380 Index have become the representative indices for the boards of typical companies with blue chip shares and promising companies with blue chip shares, respectively. As the listed companies within the above 3 boards are at different stages with great discrepancies in terms of market capitalization size and industry, their capabilities and characteristics of dividend distribution are considerably different as well.

Most of the constituent companies of SSE 180 Index are large blue-chip companies in the traditional industries related to finance, energy, raw material, etc., which could give stable and rich cash return to investors for their stable performance, as well as strong intentions of dividend distribution and good abilities of dividend distribution. Last year, the constituent companies of SSE 180 Index distributed cash dividend of RMB284 billion in total to A-share investors, with the dividend payment rate up to 30%. In contrast, as the constituent companies of SSE 380 Index, as the rising companies with blue chip shares, are growing rapidly with small sizes, their total dividend distribution is low. Nevertheless, some of the constituent companies of SSE 380 Index boast strong capabilities of dividend distribution. With the development of the rising companies with blue chip shares, their capabilities of dividend distribution are expected to be elevated.

To select the best of the best, SSE 180 Dividend Index and SSE 380 Dividend Index have set strict conditions for culling constituents. Namely, they both require that the stocks with the average after-tax cash dividend rates in last 2 years up to 1% or above could enter the sample space, in which the top 30 kinds of stocks boast high dividend rates are respectively taken as index constituents. Remarkably, the total dividend distribution of SSE 180 Dividend Index Constituents accounts for 76% of that of the parent index, with the index dividend rate up to 3%, while the dividend rate of SSE 380 Dividend Index also reaches 2.68%.

The actual controller series dividend indices depict the features of dividend distribution of listed companies from the perspective of the types of companies' actual controllers. Due to discrepancies in development environments and enterprise sizes, state-owned enterprises and private ones have different features of dividend distribution. In light of the total dividend distribution, the dividend distribution of SSE-listed state-owned enterprises reached RMB293.8 billion, accounting for 92% of the total dividend distribution of SSE-listed enterprises. The central state-owned enterprises listed on the SSE, as a major force in the dividend distribution, boast 82% of the total dividend distribution of all the state-owned enterprises. Although private enterprises have a lower amount of dividend distribution, they have become a dividend source that can not be neglected in the capital market, with the high growth potential. The number of the private enterprises distributing cash dividend in last year reached 106, while some of listed private companies with high dividend rates erected good images in the capital market by positively giving return to their investors. The actual controller series dividend indices are expected to bring about suitable investment targets for the investors that focus on different enterprises' capabilities of dividend distribution, continuously boost the construction of the dividend distribution system of relevant enterprises, and elevate their intentions of dividend distribution.

As profit distribution resides in the independent decision-making by listed companies, the SSE consistently encourages the dividend distribution of listed companies by market-oriented means in the process of building the blue chip market. The release of the dividend series indices is one of the major moves of the SSE to elevate the level of list companies' dividend distribution. The listed companies that could be covered by relevant dividend indices, with their good sense of returning to shareholders, will gain recognition from the capital market, which will contribute to getting more supports from the capital market in the future, forming positive feedbacks, and encourage more listed companies to distribute dividend, so as to fuel the sound dividend distribution in the whole market. Relevant dividend indices will provide investors with new investment targets, and fuel the growth of stable-return-oriented index investment products. The SSE will continue to further develop dividend indices, while more dividend indices will turn out with the continuous improvement of the quality of listed companies' dividend distribution.