Equities
The new dividend playbook: How tech giants and Asian markets are redefining the payout play
10 min read 27 Mar 25
Tech giants adopting dividend policies, alongside Asia’s heightened focus on shareholder returns, are challenging traditional dividend investing norms. This evolution blends growth with income, expanding the appeal of dividend-focused strategies across sectors and regions. Dominic Howell and Noura Tan map out how these shifts are shaping a new dividend playbook.
Dividend investing is as old as the stock market 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 consistently grow their dividends can be particularly appealing, as the compounding effect of reinvested dividends can significantly enable wealth growth over time. This practice quickly became a cornerstone of investing, offering a tangible return and attracting those in pursuit of steady income.
Traditionally, the strategy has been dominated by blue-chip companies — market stalwarts in sectors such as utilities, consumer goods and finance. These firms, known for their robust balance sheets and consistent earnings, have weathered economic fluctuations and reliably rewarded shareholders with regular payouts. In contrast, smaller and rapidly growing companies tended to eschew dividend payouts, opting to reinvest capital into their business instead. This arguably fanned the erroneous belief that income and capital growth were mutually exclusive strategies. But is it still the same old play?
Tech stocks pay up
The advent of dividend payouts among major technology firms marks a significant departure from historical norms. Microsoft led the way in 2003, followed by others, with Alphabet (Google’s parent company) and Facebook owner, Meta Platforms, joining the ranks as recently as 2024. Once synonymous with high growth and reinvestment of profits, these tech giants are now adopting a more shareholder-friendly approach. Flush with cash they are able to embrace dividend policies, as well as continue to invest, blending growth potential with income generation. This development challenges the traditional perception of tech stocks as solely capital appreciation vehicles, introducing a new dimension to the dividend investing narrative.
With the latest inclusions, five of the Magnificent Seven (Mag 7)1 are now officially dividend distributors, leaving Amazon and Tesla as the outliers. Big tech’s entry offers greater opportunities for investors, expanding the spectrum of high-quality companies within dividend-focused portfolios. Nevertheless, the rising prominence of the Mag 7 in dividend indexes prompts questions about the viability or sustainability of this trend.
Despite the traditionally low yields in the tech sector, which cast doubt on their potential suitability for dividend strategies, the growth rate of dividends from tech companies has consistently outpaced the broader market for several years. Tech firms within the S&P 1500 have more than doubled their dividend payouts by 2023 compared to their levels in 20132. This growth rate ranks as the fourth highest among all sectors, significantly surpassing the 7.2% dividend increase observed for the S&P Composite 1500 over the same period3.
"When it comes to dividend
investing, a low yield is
not necessarily a sign of a
poor investment. The critical
factor lies in the trajectory
of dividend growth over time"
When it comes to dividend investing, a low yield is not necessarily a sign of a poor investment. The critical factor lies in the trajectory of dividend growth over time. For Stuart Rhodes, Manager of the M&G Global Dividend Strategy, dividend growth serves as his ‘North Star’. For 17 years, this guiding principle has guided him through myriad crises and market regimes. “When companies consistently increase their dividends annually, capital appreciation inevitably follows, culminating in robust total returns (the combination of income and capital growth),” he explains. In Rhodes’ perspective, dividends and share prices are inextricably linked.
From an investment standpoint dividend growth can be seen to be a winning strategy. At the end of 2024, the S&P 500 Dividend Aristocrats, featuring firms with at least 25 years of consecutive dividend increases, achieved an annualised total return of 10.1% (in US dollars) over 25 years, outperforming the S&P 500’s 7.7% return over the same period. This highlights the effectiveness of dividend growth, notwithstanding the episodic volatility in alpha4.
Rhodes recalls the 1990s when many believed that if a tech company paid a dividend, it was an indication that its growth phase was over. “In the last decade, that sentiment has changed. Tech companies now generate enough cash flow to reinvest, buy back shares and pay dividends. The stigma around tech dividends has diminished,” he observes. Today, many tech firms pay dividends, not as a sign of slowing growth, but as evidence of robust business models, says Rhodes. He notes that these companies can grow without exhausting their capital, positioning them as potentially exceptional investments.
At the same time, John Weavers, Manager of the M&G North American Dividend Strategy, highlights the importance of ensuring that rising dividend payouts are driven by genuine business growth, and not merely payout ratio increases. “We aim to invest in companies that will increase their dividends through earnings growth. This approach applies to all sectors, including tech, where we seek businesses with strong reinvestment opportunities,” he explains.
Citing Visa and Mastercard as prime examples, Weavers underscores their long-term earnings and dividend growth, despite low initial yields. Since its 2006 Initial Public Offering, Mastercard, for example, has never yielded more than 1%, yet its dividend has grown annually at a compound rate of 31%, paralleling strong share-price performance with an average annual growth rate of 31%. With the ongoing transition from cash to digital transactions, Weavers believes Mastercard’s growth trajectory remains promising.
Weavers highlights that a key challenge with the growing influence of the Mag 7 in dividend indexes is ensuring that dividend growth strategies effectively diversify portfolios in relation to the broader market. He cautions that while high-performing individual shares can be tempting, it is crucial to maintain discipline to avoid the pitfalls of short-termism.
By prioritising sustainable dividend increases, investors may capitalise on the long-term tailwinds that have historically benefitted dividend growth portfolios. Focusing on consistent dividend growth helps preserve long-term benefits and diversification potential, reinforcing the strategy’s ability to weather market fluctuations and deliver steady returns, according to Weavers.
The pivot towards tech companies issuing dividends has also introduced new considerations about the future of traditional dividend-paying sectors like financials and utilities. Historically, these sectors have anchored dividend-focused portfolios, offering reliable income streams. With more tech giants now entering the dividend space, there is speculation about whether these traditional sectors will lose their appeal or adapt to maintain their relevance.
Weavers addresses this shift, noting that, “historically, about 70% of companies in the US market pay dividends, which aligns with long-term trends.”
“The anomaly was during COVID-19, when some businesses cut dividends and new entrants didn’t pay. But now, we’re back to the long-term range where many view income as a way to return cash to shareholders and demonstrate cash flow strength,” he adds.
This suggests traditional sectors like financials and utilities will continue to play a significant role in dividend growth strategies.
“The inclusion of tech giants in dividend indexes does not fundamentally alter the investment thesis. Investors should continue to seek the strongest businesses with the best growth and valuations,” outlines Weavers. “If utilities, consumer staples or any other sector offer the most attractive valuations and growth, that's where we should invest.”
As Weavers asserts, the market has essentially reverted to its historical norm, where income is key to shareholder returns.
On this, Rhodes notes: “History shows that dividends act as a major driver of equity returns over the long term. Over the past 25 years, nearly half of the total return from global US equities has been derived from reinvested dividends, leveraging the power of long-term compounding.” The S&P 500 has delivered an annualised total return of 7.7% (in US dollars), with 55.9% attributed to income and 44.1% to capital appreciation5.
An often overlooked yet compelling aspect of dividend investing is its inherent ability to serve as an effective inflation hedge. Investing in companies that consistently raise their dividends offers much-needed inflation protection. Dividend investing is an established strategy with a powerful tailwind. Over time, the disciplined pursuit of a rising income stream is underpinned by these favourable dynamics. By prioritising sustainable dividend growth and strategic diversification, dividend growth can potentially help investors navigate market fluctuations and secure consistent, long-term returns.
Asia’s dividend age
While the emergence of tech dividend-payers is disrupting the investment universe, simultaneously, the dividend landscape in Asia is experiencing a transformative shift, driven by strategic policy initiatives and market reforms in key markets. As tech giants in the West adopt dividend payouts, Asian markets are keeping pace, with local companies increasingly focusing on returning capital to shareholders during a challenging economic outlook.
In recent years, China and Japan have introduced policy measures to boost the attractiveness of local firms to investors. Last year, Chinese firms distributed a record 2.4 trillion yuan (US$330.9 billion) in dividends, with share buybacks climbing to 147.6 billion yuan ($20.3 billion)6. In the two months leading up to this Lunar New Year in February, over 310 companies issued dividends totalling more than 340 billion yuan ($46.9 billion), marking nearly an eight-fold increase compared to the same period the previous year7.
Driving this trend are a series of directives from Beijing, including an adjustment by regulators to evaluate state-owned companies based on return-on-equity (ROE), restrictions on share sales by controlling shareholders of low-dividend firms, a 300-billion-yuan ($41.4 billion) share buyback financing programme and calls for companies to pay dividends multiple times a year. These measures have heightened the focus on high-yield firms, with the dividend yield of the CSI 300 reaching 3% (in yuan) in January8, the highest in nearly a decade.
Japan is also another key market to watch in this domain. Rhodes highlights the transformative impact of Abenomics over the past 13 years, with significant effects becoming evident in the last five. “Data shows that shareholder priorities have risen and attitudes towards dividends have improved, indicating a clear shift,” he observes.
A key move was the Tokyo Stock Exchange's (TSE) 2022 restructuring, aimed at simplifying market segments and enhancing global competitiveness. This reclassification incentivised companies to improve operations and shareholder value, thereby attracting more capital to the Japanese market.
The average dividend payout ratio for the fiscal year ending March 2025 was up three percentage points from the previous year, standing at 36%9. This marks its highest level in four years and closely aligns with the US component of the S&P 500, which stands at 34%10.
Firms are also now compelled to submit ROE enhancement plans to the TSE, driving a surge in share buybacks and dividend distributions. In 2023, Japanese corporations executed stock buybacks amounting to approximately ¥960 billion ($6.3 billion), setting a record high for the fourth consecutive fiscal year11.
The US dominates the global equity market and is a major focus for dividend investors, but Rhodes points out that opportunities abound in various regions. “The US market stands out for its scale and the number of investable companies, offering liquidity and a vast selection for dividend investments. In Europe, many companies have strong dividend track records. Australia is notable for its tax advantages, encouraging even growth companies to pay dividends, making it a standout region,” he highlights.
Despite these advancements, China and Japan still lag behind their global peers in average dividend payouts. However, with ongoing reforms and an increasing focus on shareholder returns, there remains significant room for growth in both markets.
The expanding dividend playbook
As we navigate an era of declining interest rates, dividend investing remains a steadfast strategy for generating reliable income. The landscape, however, has evolved, with the entry of tech giants into dividend portfolios offering an opportunity to leverage significant growth prospects and enhance diversification.
At the same time, initiatives in China and Japan are creating a more shareholder-friendly environment, with increasing dividend payouts and share buybacks. These changes signal a promising future for dividend growth in the region, aligning with global trends and enhancing the attractiveness of Asian markets for income-focused investors.
“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 during his 17-year tenure. Over the years, the universe of opportunities for dividend investors has increased. Rhodes sees no shortage of potential investments today but not overpaying is critical for long-term success: “We look for good investments, not just good companies. The ability to capitalise on unexpected opportunities in dividend investing remains crucial.”
“We look for
good investents,
not just good
companies."
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. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast and they should not be considered as a recommendation to purchase or sell any particular security.
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 29 November 2024.
5 As of 31 December 2024.
6, 7, 8 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.
9, 10 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.
11 Grace Su and Jean Yu, ‘Governance Reforms Power Japan Forward’, (clearbridge.com), September 2024.
