The new dividend playbook: How tech giants and Asian markets are redefining the payout play

Please see our glossary for terms used throughout the article.

Dividend investing is as old as the stockmarket itself, dating back to the 17th century when the Dutch East India Company first distributed profits to its shareholders. The beauty lies in its simplicity: invest in established companies, receive dividends and either pocket the cash or reinvest it to accumulate more shares.

Investing in companies that regularly increase their dividend payments is appealing because reinvesting these dividends can help your money grow significantly over time. This practice quickly became a cornerstone of investing, offering a tangible return and attracting those in pursuit of steady income.   

Dividend investing traditionally focused on big, stable companies like those in utilities and finance, which reliably paid dividends. Smaller, rapidly growing companies typically reinvested profits instead of paying dividends, leading some to believe income and growth don’t go hand-in-hand. 

But is this still the case?

Tech stocks pay up

Tech stocks used to be mainly valued for their potential to increase in share price because of rapid growth, which attracted investors seeking capital gains. Now, companies like Microsoft, Alphabet and Meta are paying dividends, combining growth with income strategies. This shift challenges the old idea that tech stocks are only for capital gains, introducing a new dimension to dividend investing.

Five of the major tech companies known as the Magnificent Seven¹ are now paying dividends to investors, with Amazon and Tesla remaining exceptions. This gives investors more choices by including well-regarded companies in their portfolios. However, there’s some uncertainty around how these companies will fit into dividend portfolios in the long run.

This inclusion enhances investment opportunities by broadening dividend-focused portfolios with high-quality companies. However, it raises questions regarding the sustainability of their growing role in dividend indexes.

Although the tech sector used to be known for low dividend yields, making it seem less suitable for dividend investing, tech companies have been growing their dividend payments faster than the overall market for several years. By 2023, tech firms in the S&P 1500 – a stock index that includes large, mid-sized and small US companies² – more than doubled their dividend payouts compared to 2013 levels³.

When it comes to dividend investing, a low yield is not necessarily a sign of a poor investment. What’s really important is how the dividend payments grow over time. For 17 years, Stuart Rhodes, Manager of the M&G Global Dividend Strategy, has relied on dividend growth as his ‘North Star’. He explains that companies that regularly increase their dividend payments help raise the value of your investment overall, leading to strong total returns.

By the end of 2024, the S&P 500 Dividend Aristocrats – a group of companies that have increased their dividend payments every year for 25 years – achieved an average yearly return of 10.1% (in US dollars). 

This outperformed the broader S&P 500’s return of 7.7% (in US dollars), an index tracking the stock performance of 500 major US companies⁴. This highlights that concentrating on dividend growth can be beneficial, even amidst market fluctuations.

Rhodes recalls the 1990s when many believed that if a tech company paid dividends, it meant their growth had slowed down. Opinions have changed since then. He points out that tech companies now have strong cash flows, allowing them to reinvest, pay dividends and buy back shares, which can increase the value of remaining shares by reducing their availability.

John Weavers, Manager of the M&G North American Dividend Strategy, believes dividends should grow because the business is doing well, not just by paying out more profits. He looks for companies, including those in tech, that can increase dividends through better earnings. Visa and Mastercard serve as notable examples, both having consistently grown their earnings and dividends, even with initially modest dividend yields. Since Mastercard went public in 2006, its dividends have grown by 31% per year, just like its share price. This growth hints at a bright future as more people use digital payments.

Weavers points out that the growing presence of the Mag 7 in dividend indexes makes it harder to diversify investment portfolios effectively. He cautions investors against the urge to heavily invest in high-performing stocks, underscoring the importance of staying disciplined to avoid focusing only on short-term gains.

By prioritising sustainable dividend increases, investors can benefit from long-term trends that have historically supported dividend growth portfolios, according to Weavers. This approach helps keep long-term benefits and variety in investments, making it easier for investors to deal with market ups and downs while receiving steady returns.

In addition, a worthwhile but often overlooked feature of dividend investing is how it can help protect against inflation. This established approach helps investors aim for steadily rising income. By focusing on companies that can sustainably grow their dividends and carefully spreading their investments across different areas, investors can manage market fluctuations and work toward steady returns over the long-term.

Asia’s dividend age

The rise of tech companies that pay dividends is changing the way people invest, alongside big changes happening in Asia due to new policies and market reforms. As major Western tech firms start giving out dividends, Asian markets, especially in China and Japan, are focusing on giving money back to their shareholders, even as they face tough economic times.

Last year, China reached record levels by paying 2.4 trillion yuan (US$330.9 billion) in dividends and conducting 147.6 billion yuan (US$20.3 billion) in share buybacks, driven by supporting government policies⁵. Similarly, Japan has increased its average dividend payout ratio – the percentage of earnings paid out as dividend – to 36%. This rise was influenced by Abenomics, economic policies aimed at rejuvenating the Japanese economy, and changes to the Tokyo Stock Exchange in 2022, which targeted market improvements. Japan’s payout ratio now closely matches the rate of 34% seen in the S&P 500⁶.

China and Japan trail in dividends but demonstrate growth potential 

Source: Bloomberg and Fidelity, April 2024⁷

Despite trailing behind other countries in average dividend payouts, ongoing reforms hint at growth potential for these markets. Rhodes highlights various opportunities for dividend investors worldwide. In the US, the large market size offers many options, Europe boasts companies with strong histories of paying dividends and Australia provides tax benefits that encourage dividend payments.

The expanding dividend playbook

As interest rates fall, which can affect the returns on traditional savings and investments, the strategy behind dividend investing evolves to offer reliable income. Tech giants now entering dividend portfolios provide opportunities for growth and diversification. At the same time, initiatives in China and Japan are increasing dividend payouts and share buybacks, making Asian markets more attractive for those focused on earning income.

“Initially, tech was the hardest sector to find opportunities and Japan was the toughest market”, Rhodes notes, reflecting on the evolution of the dividend universe over his tenure. Rhodes observes more opportunities to invest in dividends, highlighting the importance of finding valuable investments at fair prices and taking advantage of unexpected opportunities for long-term success.
 

¹ The Magnificent Seven (Mag 7) are a group of mega-cap technology companies in the US, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
^{2, 3} ProShares, ‘Technology Stocks: An Unexpected Source of Dividend Growth’, (proshares.com), September 2024.
⁴ As of November 2024.
⁵ State Council Information Office, ‘It’s about the stock market! The five departments have spoken out and these contents have been clarified’, (gov.cn), January 2025.
⁶ THE NIKKEI via scoutAsia, ‘Record high of 40% listed companies increasing dividends, 3.6 trillion yen to households as a tailwind for asset building’, (market-news-insights-jpx.com), June 2024.
⁷ Average dividend payout ratio for the past five years.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser. The views expressed here should not be taken as a recommendation, advice or forecast.