...While Japan Must Scramble To Maintain Its Puny Payouts

If U.S. dividends have been historically high recently, in Japan they have been low--as a share both of profits and of stock prices. Indeed, according to Steven H. Nagorney, global investment strategist at Lehman Brothers Inc., the frugal dividend policies of Japanese companies, combined with current economic woes, have placed them in a bind.

Nagorney points out that dividend yields in Japan averaged 5.1% and 2.6% in the 1960s and 1970s, respectively, as corporate profits grew at double-digit rates. But in the 1980s, when profit growth slowed to 9% a year, dividends fell to 1.2%. Now, profits have declined for four straight years, and yields on Japanese stocks have dipped below 1%.

To keep stock prices from falling, says Nagorney, Japanese companies will have to maintain dividends at close to current levels. But that will require profits to start growing again, and the only way Japanese companies seem able to boost growth in today's parlous economic climate is to cut costs dramatically. "The layoffs and cutbacks we've seen in some Japanese companies," he says, "may be only the beginning."