By contrast, high-dividend strategies tilt more toward Europe and lean hard into consumer staples, healthcare, energy and other “old economy” sectors known more for high payouts than growth potential. Traditional high-dividend approaches also tend to prioritize defensive sectors, which may be less volatile but also less likely to fully capture market upside.
In our view, this reinforces the principle that multi-asset income investing should harness both dividend generation and growth potential.
Quality Is a Key Ingredient in Income Investing
Whether investors are tapping stocks for dividend or growth potential, we think it’s critical to zero in on the right ones.
Sometimes, high dividends are accompanied by weak fundamentals, whether it’s from the headwinds of declining industries or payouts that are unsustainable. Active quality filters may help avoid such traps by identifying stocks with stable or growing dividends. Based on our research, dividend growers and firms returning cash via both dividends and share buybacks have fared better than those paying high but static dividends.
Prioritizing the selection of high dividends at the expense of identifying quality growth could leave a lot of return on the table, as we can see by comparing the earnings growth between global and high-dividend stocks (Display). Over the past decade, quality sources of corporate earnings growth have historically had better upside than purely dividend-focused stocks.
