When observing the Nikkei 225, it’s crucial to distinguish between its price index and total return index to gain a comprehensive understanding of its performance. While the Nikkei 225 price index, a widely recognized benchmark of the Japanese stock market, remains significantly below its historical peak of 1989, the Nikkei 225 Total Return index achieved a record high in February 2021, surpassing the bubble era peak. This difference highlights the substantial impact of dividends and their reinvestment over time.
The Nikkei 225 price index reflects the price movements of stocks without considering dividend payouts. In contrast, the Nikkei 225 Total Return index factors in dividends by assuming they are reinvested, capturing the compound interest effect. This methodology is standard practice for major global stock indexes, and institutional investors frequently use total return indexes to accurately compare investment performance.
Since the initiation of Abenomics in 2013, the Nikkei 225 Total Return Index has markedly outperformed the Nikkei 225 price index. This divergence is attributed to a growing emphasis on shareholder returns among Japanese companies, leading to increased dividend payouts.
Data from Nikkei NEEDS indicates a significant rise in the dividend payout ratio of Nikkei 225 constituents. For companies with consistently comparable data, the payout ratio reached 38% in fiscal year 2020, a 10-point increase from fiscal year 2013. While net profit for these companies increased by 15% during this period, total dividends surged by 55%, demonstrating a clear commitment to rewarding shareholders.
For investors seeking a deeper dive into the dynamics of the Nikkei 225 and its total return performance, further resources are available.
*About Nikkei NEEDS
Nikkei NEEDS (Nikkei Economic Electronic Databank System) is a comprehensive data service providing over 50 years of high-quality financial, equity, fixed income, and macroeconomic data. Trusted by over 95% of Japanese financial institutions, including major securities companies and banks, Nikkei NEEDS is a leading source for accurate and reliable market information in Japan.
