Are emerging markets on the cusp of a dividend boom?
Valeria Vine
Investment Specialist
  • Emerging markets have evolved to become a resilient source of dividends even as global payout numbers took a brutal hit from the COVID-19 pandemic.
  • Robust balance sheets and a strengthening corporate governance culture are key drivers of emerging market dividends.
  • The diversity of the many economies and companies in emerging markets highlights the importance of bottom-up investing.

Dividend stocks have not had an easy time since COVID-19 first left its mark on financial markets more than a year ago. Yet amidst all the negativity brought about by dividend cuts and suspensions, emerging market (EM) dividend payouts have remained relatively resilient throughout the pandemic. In this paper, investment director Valeria Vine highlights the reasons behind the region’s resilience and its potential for strong dividend growth.

The headline numbers tell a fairly grim story. Global dividend payouts fell 12.1%1 in 2020 as the COVID-19 pandemic forced economies to shut down for a prolonged period. The economic inactivity prompted many companies to go into cash preservation mode, which led to widespread dividend cuts as well as suspensions. All in all, one in five companies globally made a dividend cut and one in eight even cancelled payouts entirely in 20201.

Yet looking at the numbers from a geographical perspective tells a slightly different story. While the pandemic was felt keenly across all corners of the globe, its impact on dividend payouts was less evenly distributed. As shown in the table below, in the UK, companies slashed their 2020 dividend payouts by a staggering 40.0%. Firms in Europe ex UK also took drastic action with a 31.9%1 reduction.

Positioned at the other end of the spectrum were North America (+2.5%) and Japan (-5.6%). North America, in fact, was the only region to record an increase in 2020 dividend payouts although the numbers did not take into account a drop-off in share buybacks. S&P 500 companies spent US$519.7 billion on share buybacks in 2020, which was down 28.7% from the previous year2. This decline indicates that US companies held back from allocating significant corporate cash to shareholders but went about doing so via a different channel.

The performance of Japan is easier to explain. Companies from the land of the rising sun have historically been more conservative with the use of their capital and tend to have larger surpluses on their balance sheets.

Companies held back from dividend payouts in 2020

Annual dividends by region (US$ billions)

*Year-on-Year change.
Totals may not reconcile due to rounding. Source: Janus Henderson Global Dividend Index. May 2021 Report, Edition 30.

EM resilience amid volatility

One of the key developments during the COVID-19 pandemic has been the commitment of central banks to maintain accommodative monetary policies and support their respective economies. As the “lower for longer” interest rate environment continues to dictate the rhetoric of the current investment climate, there have been increasing discussions about the need for income investors to branch out their options and delve deeper into dividend-paying stocks.

However, one important lesson that 2020 has also taught us is the need for diversification even among dividend-paying stocks. Whereas classic hunting grounds such as Europe and the UK saw the level of dividend payments collapse in 2020, EM dividend payouts proved much more resilient, falling only 8.8%.

This was primarily because North Asia, which makes up roughly 65%3 of the MSCI EM Index, was able to come out of the COVID-19 drag much faster than the rest of the world. While much of Europe and North America only began easing pandemic restrictions in recent months, business and manufacturing activities in China, for example, were already close to pre-pandemic levels more than a year ago. Official statistics from the Chinese government reveal that the national work resumption rate of small and medium-sized enterprises was 84% as at 15 April 2020 (a little more than a month after the pandemic erupted in Europe and North America4) while large industrial enterprises resumed operations at a rate of 99%5.


1. Source: Janus Henderson Global Dividend Index. May 2021 Report, Edition 30.

2. Source: S&P Dow Jones.

3. Data as at 30 June 2021. In the context of this paper, North Asia refers to China, Taiwan and South Korea. Source: MSCI.

4. Refers to March 2020 when the World Health Organisation declared COVID-19 as a pandemic.

5. Source: National Bureau of Statistics of China.


Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.

Valeria Vine is an investment specialist at Capital Group. She has 11 years of industry experience and has been with Capital Group for four years. Prior to joining Capital, Valeria worked as a management consultant at Ernst & Young. Before that, she was a senior consultant at FactSet. She holds a master's degree in banking and international finance from Cass Business School and a bachelor's degree in economics from University of Nottingham. She also holds the Chartered Financial Analyst® designation. Valeria is based in London.


Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.