High-dividend stocks benefit from several tailwinds, according to Sam Witherow, a managing director who co-manages the JPMorgan Global Equity High Income fund. The strategy aims to generate a high level of income and achieve capital appreciation by allocating to top quality dividend-paying companies.
First, “dividend growth is strong, increasing in nine of the last 10 quarters, partly as a legacy of the Covid pandemic when companies often retained earnings rather than cut dividend cheques,” Witherow told FSA in a recent interview.
Second, valuations among the top half of high dividend payers are trading at a discount.
Finally, “geopolitical uncertainty is prompting investors to switch into stocks of quality companies with strong cash flow,” he said.
“Besides, although corporate earnings growth has been tepid during the past two years, dividend growth has remained a healthy 9-10%,” noted Witherow (pictured). “Yet, globally, the payout rate is 36% compared with an historical average of 42%, and dividend revisions are still positive.”
Indeed, “dividends have been a critical contributor to total returns over time,” said Witherow. They have made up more than 55% of the MSCI ACWI Total Return since 1987, data compiled by J.P. Morgan Asset Management shows.
However, a significant part of the income generated by the JPMorgan Global Equity High Income fund includes premiums from writing call options every week on major indices covering global and emerging markets in a disciplined fashion.
“Organic income (dividends) comprises 2.8% of the fund’s income, and call premiums make up around 6%. The objective is a 9% distribution throughout the cycle, paid out every quarter,” said Witherow.
Asset allocation
The fund invests in large-cap stocks, with a median market capitalisation of $75bn. It has about 80 holdings and avoids making large sector allocations in the current uncertain environment. The average holding period is three years.
At the start of the year the fund was defensive, because valuations were too high. But Witherow sees potential in technology, industrials and even cyclicals.
“Opportunities in other regions are largely played out, so we are now looking at opportunities in the US again,” he said.
The percentage of global tech companies that paid dividends during the past three years has risen from 46% in 2022 to 60% in 2024; the annualised dividend growth rate of global equities is expected to accelerate from 5.6% during the past two decades to 7.7% in the next five years.
Other favoured sectors include financial infrastructure, such as stock exchanges which benefit from high trading levels and market volatility. Insurers are also paying attractive dividends.
Among emerging markets, Witherow likes Mexico, Indonesia and Taiwan, and is slightly overweight China.
“Nevertheless, as we enter a period of slower growth, the strategy remains skewed towards defensive stocks,” Witherow said.
Critically, a high income-oriented global equity portfolio has historically generated additional income with less volatility, he added.
The strategy was launched in 2007, and the Securities and Futures Commission authorised unit trust was incepted on 17 March 2025. In addition to US dollar and Hong Kong dollar share classes, the fund is available in (hedged) renminbi, Australian and Canadian dollars, yen and sterling.
