NEC Corporation's Valuation Dynamics: Do Accelerating Shareholder Returns Justify a Premium Over Market Benchmarks?

NEC Corporation (TSE:6701) has emerged as a standout performer in Japan's technology sector, with its shareholder return strategy increasingly drawing attention from investors. This article evaluates whether NEC's accelerating dividends, share buybacks, and total shareholder return (TSR) justify a valuation premium relative to broader market benchmarks like the Nikkei 225 and TOPIX.

Shareholder Returns: A Steady and Aggressive Approach

NEC has demonstrated a disciplined approach to returning value to shareholders. Dividends have risen consistently, from 110 yen per share in fiscal 2023 to 140 yen in 2025, with a projected 32 yen payout for 2026, according to NEC's dividend page. This represents a compound annual growth rate (CAGR) of approximately 12.6% over three years. Complementing this, NEC executed a significant share repurchase program, repurchasing 6.1875 million shares for 30 billion yen in 2022–2023, according to Simply Wall St. These actions signal strong confidence in the company's financial flexibility and commitment to rewarding shareholders.

Total shareholder return (TSR), which combines stock price appreciation, dividends, and buybacks, has been particularly striking. As of October 2025, NEC delivered a 77.14% TSR over the past twelve months, according to Yahoo Finance, outpacing many peers. This performance is underpinned by a 74.11% surge in its stock price over the same period, per the StockAnalysis statistics, driven by strategic cost-cutting, digital transformation initiatives, and robust demand in cybersecurity and AI-driven solutions.

Market Benchmarks: Nikkei 225 and TOPIX Performance

The Nikkei 225, Japan's premier price-weighted index, has delivered mixed returns in recent years. It surged 28.2% in 2023, followed by 19.2% in 2024 and 20.5% in 2025, according to data from Ticker. While these figures reflect a resilient market, NEC's 77% TSR in the most recent twelve months far exceeds the index's annualized returns.

The TOPIX, a broader market-cap-weighted index, has also shown strength, hitting a 33-year high in 2023 and an all-time closing high in 2024, per Curvo. However, precise annual returns for TOPIX in 2023–2025 remain unspecified in available data. Analysts estimate its performance to lag behind NEC's, particularly given the index's inclusion of smaller, less dynamic firms. Goldman Sachs projects TOPIX earnings per share growth of 7% in 2025, according to Goldman Sachs, suggesting NEC's EPS growth (exceeding analyst expectations in multiple quarters, per the StockAnalysis overview) further differentiates it.

Valuation Justification: Premium or Overreach?

NEC's valuation premium-reflected in its price-to-earnings (P/E) ratio of 22.5x as of October 2025-requires scrutiny. While this is higher than the Nikkei 225's average P/E of 18.2x, it aligns with its superior TSR and earnings growth. The company's TSR of 77% in the past year dwarfs the Nikkei 225's 20.5% return in 2025, suggesting investors are willing to pay a premium for its execution.

However, risks persist. NEC's revenue declined slightly (-1.55%) in fiscal 2025, per StockAnalysis revenue, raising questions about its ability to sustain growth in a competitive tech landscape. Additionally, its dividend yield of 0.67%, according to StockAnalysis dividend, remains modest compared to global peers, indicating room for improvement in income generation for long-term investors.

Conclusion: A Compelling Case for Selective Investors

NEC Corporation's shareholder return strategy, characterized by aggressive dividends, buybacks, and outsize stock price gains, has justified a valuation premium over broader market benchmarks. While the Nikkei 225 and TOPIX have delivered solid returns, NEC's TSR of 77% in the past twelve months underscores its outperformance. For investors prioritizing capital appreciation and strategic reinvestment, NEC presents a compelling opportunity-provided its revenue challenges are addressed and its innovation pipeline remains robust.