However, EMs represent a uniquely appealing income universe for active investors with a total return mindset. We believe the breadth of the universe and underlying growth potential make for a powerful combination.
Income investing is powerful in emerging markets
Paying a dividend signals a shareholder-driven mindset from management and a discerning approach to capital allocation. And many companies in EM now recognise the need to pay a dividend.
The number of companies paying a dividend in EM has grown significantly since 2001, supported by strong underlying company fundamentals. Surprisingly, the same proportion of companies in EM now pay a dividend when compared to developed markets (DM), which is close to 85% (Chart 1) [1].
Chart 1: More companies paying dividends in emerging markets than in developed markets
Chart 2: Market cap weighted yield by sector
Isn’t income investing just telecommunications and utilities?
Not exactly. We believe there is an embarrassment of riches when it comes to dividend opportunities in EMs. These span across the spectrum, on both a sector (Chart 2) and country basis (Chart 3).
Chart 3: Market cap weighted yield by country
Yield doesn’t preclude growth
In such a dynamic asset class, it is not uncommon for investors to assume that investing in an income strategy, often associated with mature companies, would mean missing out on exciting growth opportunities. However, we believe in EM, this is not the case.
Strong corporate fundamentals and good underlying economic growth mean dividends have grown significantly faster in EM versus DM since the early 2000s. This equates to an impressive compound annual growth rate (CAGR) of around 12% over the last 20 years (Chart 4) [2].
Chart 4: Unprecedented pace over the last two decades
Total returns’ two components
Income is the lifeblood of total returns over time. It not only comes in the form of dividend distributions, but also represents the cash flow that companies generate and reinvest to grow tomorrow’s income.
The two components behind the MSCI EM Index’s total return since 2000 are earnings growth (i.e., price return) and dividends. Since December 2000, EM dividend returns have been among the highest relative to other regions (Chart 5).
Chart 5: Emerging markets’ dividend returns have been one of the highest since 2000
The price return component, which represents half of investor returns, is primarily driven by cash flow growth, which in turn fuels dividend growth. The other half of investor returns has come from the compounding effect of dividend payments.
Income delivery is attributable to strong underlying economic growth and corporate health. The attractive growth characteristics of EM dividends, stemming from both the underlying growth of cash flows and rising payouts, are a trend we expect to continue. Coverage of dividends in EMs is also appealing, with strong balance sheet health providing further support for the growth of payout ratios.
By investing in high and growing income within EMs, active investors can access attractive opportunities as part of a diversified portfolio designed to generate strong total returns.
Why now?
Tariff changes are part of a structural shift that brings macroeconomic uncertainty in the near term but presents significant opportunities for EMs over the medium and long term. Historically, EM performance has been tied to the global investment cycle, and we believe we are embarking on a new one.
At a strategy level, our insight can be grouped into three core investment pillars: technology as a platform, infrastructure, and domestic brands.
The first two are key beneficiaries of the drive to invest in modernising economies in a productive and environmentally conducive manner. Domestic brands will also benefit from this tailwind of higher employment and investment activity.
Technology as a platform
We believe there lies particular interest in technology hardware companies, such as semiconductor producers, which represent the new building blocks of the digital economy.
As economies grow and modernise, we expect to see significant investments in telecommunications and high-powered computers.
One of the most recent developments in this space has been the commercial emergence of generative artificial intelligence, which is accelerating the development of new industry applications, such as autonomous driving. We believe dividend growth technology hardware stocks are major beneficiaries of the rising need for advanced computing power.
Infrastructure
The economic and productivity enhancements of new industries in this field (e.g., robotics and autonomous driving) suggest that they will be successful even if policymakers' political appetite tempers the pace of development.
While autonomous driving offers significant safety and productivity improvements to the automotive industry, we are also witnessing a substantial demand for data centers that will power our digital economies. A demand that, in turn, has triggered the need for infrastructure investment in antiquated electricity networks.
Elsewhere, the shipping industry is also undergoing a transition cycle, driven by cleaner propulsion technologies and a need for greater defence spending. Finally, we believe innovations in the nuclear industry will meet baseload power needs with a lower carbon footprint. EMs are well-positioned to benefit from these developments as technology owners and low-cost providers of industrial metal resources.
Domestic brands and rising consumption
As economies continue to develop and modernise, we anticipate rising income levels. This trend will drive an expanding middle class, as well as greater levels of aspiration and consumption. This consumption growth presents a fertile hunting ground for dividend-paying companies, particularly for leading domestic brands that have established a significant market share in their respective industries.
Final thoughts
We believe EMs are evolving into a compelling destination for income-focused investors, offering a rare combination of high dividend yields and robust growth potential. With nearly 85% of EM companies now paying dividends – many yielding over 3% – the landscape has shifted significantly from the traditional narrative of growth alone[1,2]. This income is not confined to a narrow set of sectors; instead, it spans a diverse range of industries and geographies, supported by strong corporate fundamentals and economic momentum. Importantly, income investing in EM does not mean sacrificing growth. Dividend payouts have grown at a compound annual rate of close to 12% over the past two decades, outpacing developed markets[2]. This growth is underpinned by rising cash flows, healthy balance sheets, and increasing payout ratios, making EM dividends an influential contributor to total returns. Finally, as the global economy enters a new investment cycle shaped by structural shifts, such as tariff realignments and technological transformation, we believe EMs are poised to benefit. From tech hardware and infrastructure to domestic consumer brands, the opportunities are broad and deep.
- Jefferies, 2023 actual.
- Bloomberg, March 2025.