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CONTRIBUTORS

Dina Ting, CFA

Head of Global Index Portfolio Management,
Franklin Templeton ETFs

As markets broaden beyond mega-cap technology stocks, dividend-oriented strategies are attracting renewed attention. US dividend allocations hold appeal for many investors seeking resilience and diversification, while international dividend-focused indexes have benefited from lower valuations, easing cycles in several regions and improving shareholder-return trends.

Key takeaways

  • Despite continued concentration in mega-cap technology stocks, US dividend-focused strategies have generally remained competitive and historically experienced more shallow drawdowns than broader equity markets.
  • Last year, US companies paid a record US$704.8 billion in dividends—the 15th consecutive annual record. Concurrently, dividend growth accelerated across several international markets, highlighting the continued strength of shareholder-return trends.
  • International dividend-oriented strategies have benefited from lower valuations, improving shareholder-return cultures and broader exposure to sectors such as financials and industrials.
     

Dividend investing has long been marked by an unfortunate reputation: dependable, perhaps, but rarely the subject of lively market chatter. Then came the era of zero interest rates and the “Magnificent Seven,”1 when income strategies may have seemed even less relevant. That may be changing.

With markets broadening beyond a narrow group of US technology leaders, dividend-oriented equities have found their footing again. The appeal today is not merely yield, but quality, cash flow discipline and broader sector exposure at a time when economic growth has become more uneven across regions and sectors.

Recent performance may already reflect part of this shift, though the story differs somewhat between US and international markets. In the United States, dividend-oriented strategies have generally remained competitive despite returns continuing to be driven heavily by mega-cap tech darlings. Last year, US companies paid a record US$704.8 billion in dividends—the 15th consecutive annual record.2 Dividend growth also remains broadly supported; more than 90% of US companies either increased their payouts or held them steady in 2025.3 For investors concerned about concentration risk, that resilience may remain an important part of the appeal.

Historically, dividend-oriented equities have tended to provide a smoother ride. Over the past five years, US dividend-oriented equities experienced a maximum drawdown of roughly 17%, compared with nearly 26% for the broader market,4 with global dividend-oriented equities exhibiting a similar resilience profile.

Broad Market vs. Dividends Risk Comparison

Note: Blue denotes lower max drawdowns/volatility. Data refers to the following indexes: Global Equities: MSCI ACWI Net Total Return USD Index, MSCI ACWI High Dividend Yield USD Net Total Return Index, US Equities: MSCI USA Net Total Return USD Index, MSCI USA High Dividend Yield Net Total Return USD Index, International Equities: MSCI World ex-US Net Total Return USD Index and MSCI World ex-US High Dividend Yield Net Return USD Index. The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging market (EM) countries. The MSCI USA Index is designed to measure the performance of the large- and mid-cap segments of the US market. The MSCI World ex-US Index captures large- and mid-cap representation across 22 DM countries. The MSCI ACWI High Dividend Yield Index, MSCI USA High Dividend Yield Index and MSCI World ex-US High Dividend Yield Index are based on their respective parent indexes, the MSCI ACWI, MSCI USA Index and MSCI Europe Index. Annualized standard deviations (based on daily returns) are used for volatility. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Not reflective of the performance or portfolio composition of any Franklin Templeton Fund.

Sources: FactSet, MSCI. Important data provider notices and terms available at www.franklintempletondatasources.com. Created by Franklin Templeton’s Global Research Library.
 

International dividend-oriented strategies, meanwhile, have benefited from a different set of tailwinds. Growth in dividends accelerated across several markets in 2025, led by Japan, where payouts rose 12.5% on a core basis—more than twice the global growth rate.5 Lower valuations, broader sector exposure and improving shareholder-return trends have supported performance across several markets. Compared with many cap-weighted US benchmarks, international dividend-oriented indexes also tend to be less concentrated in mega-cap technology stocks while maintaining exposure to leading manufacturing, industrial and technology leaders.

Japan may be among the clearest examples of this. Despite strong market performance in recent years, Japanese equities continue to trade at a meaningful discount to US stocks on a forward earnings basis. As of early June, the TOPIX (a capitalization-weighted benchmark for the market) was trading at roughly 18.5x forward earnings compared with more than 22x for the S&P 500 Index.6 At the same time, ongoing corporate governance reforms have encouraged companies to deploy balance-sheet cash more efficiently. Share buybacks by Japan-listed companies reached a record of about US$142 billion in fiscal 2025,7 marking the fifth consecutive year of record repurchases and reflecting growing pressure to improve capital efficiency and shareholder returns. In our view, these developments are helping reshape investor perceptions of Japanese equities, particularly among investors seeking diversification beyond the United States.

The broader macro backdrop also appears supportive. Several central banks outside the United States—including those in the eurozone, United Kingdom, Brazil and Mexico—are already further along in easing cycles, which is relieving pressure on rate-sensitive sectors often represented heavily in dividend-oriented indexes. At the same time, infrastructure investment, industrial reshoring and energy-security spending continue supporting many global cash-generative businesses.

None of this suggests the era of artificial intelligence or US technology leadership is over. But we believe market participation should continue to expand, and such periods have historically created a more favorable environment for dividend- and value-oriented equities. That is worth remembering because dividends have historically accounted for roughly two-fifths of total US equity returns over the past 25 years, with a similar contribution in Europe.

When volatility rises and market narratives shift rapidly, companies capable of generating durable free cash flow and consistently returning capital to shareholders may regain appeal—not because they are flashy, but precisely because they are not.

Endnotes

  1. The Magnificent Seven refers to shares of Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, and Tesla.
  2. Source: Capital Group Dividend Watch, Global Equity Study 2026.
  3. Source: Ibid.
  4. Source: FactSet, MSCI.
  5. Source: Capital Group Dividend Watch, Global Equity Study 2026.
  6. Source: Bloomberg, as of June 3, 2026.
  7. Sources: Nikkei Asia, Bloomberg, May 2026.
     

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Equity securities are subject to price fluctuation and possible loss of principal. Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

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WF: 10911108

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