Cash is king, unless you are in Japan. One successful trading strategy has recently lost its luster, thanks to the Bank of Japan¡¯s never-ending obsession with negative interest rates.
When a global recession looms, investors tend to hug stocks that pay handsome dividends. Cash rewards also have appeal at corporate headquarters. Since the collapse of Lehman Brothers, S&P 500 companies have shelled out as much as 35 percent of their spending to buy back shares ¡ª even at the expense of capital investments ¡ª propelling the U.S. market to a record bull run.
This magic wand is no longer working in Japan, however. Prime Minister Shinzo Abe has nudged companies to improve shareholders¡¯ returns ¡ª via dividend payouts and stock repurchases ¡ª since as early as 2013. Until recently, dividend yield was indeed a strong predictor of future returns.
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