Emerging markets have long been characterised by their growth potential. Rapid industrialisation, rising incomes and expanding domestic demand have traditionally been the main reasons investors allocate to the asset class.
While growth still matters, investors focused solely on growth qualities risk overlooking how significantly emerging market companies (and their balance sheet management) have evolved over recent decades.
One of the clearest signs of that evolution is dividends. Today, the vast majority of emerging market companies generate enough cashflow to return capital to shareholders.
Of the approximately 1,000 stocks covered by the investment team at JPMorgan Emerging Markets Dividend Income Trust (JEMI), around 90% currently offer some level of dividend yield.
That is a striking shift and shows that income is no longer a niche feature in emerging markets. It is increasingly embedded in how companies think about capital allocation and how investors think about total return.
Dividends as a marker of quality
Dividends are about more than a source of income. Companies that can consistently pay dividends are typically supported by consistent free cashflow, resilient balance sheets and solid returns on equity. In that sense, dividends can serve as a useful indicator of financial strength and capital discipline.
In many emerging markets, paying a dividend is now a deliberate and recurring capital allocation decision rather than being viewed as a discretionary afterthought.
Management teams are weighing shareholder returns alongside reinvestment and balance sheet management. That reflects a more mature approach to corporate finance and, importantly, provides greater accountability to shareholders.
We are also seeing tangible improvements in governance standards. A regular commitment to shareholder returns tends to align more closely with external investors.
Over time, payout ratios have increased significantly across a number of emerging markets and share buybacks are becoming more common, supporting earnings per share growth and, in some cases, valuations.
There are some clear regional examples. Chinese companies, historically known for issuing equity, have increasingly turned to share buybacks as cash generation has improved.
In South Korea, government initiatives such as the ‘Value Up’ programme are actively encouraging better governance standards and a stronger emphasis on shareholder returns. These are not isolated developments but reflect broader structural change.
Dividends as evidence of recovery
In some cases, the reappearance of dividends tells an even more powerful story. The National Bank of Greece, for example, reinstated dividend payments after a 16-year hiatus following a period of extensive balance sheet repair and operational adjustment.
The return of that payout was not simply symbolic. It reflected stronger capital ratios, improved profitability and renewed confidence in the sustainability of earnings.
A spectrum of income and growth
Dividend investing in emerging markets is not confined to high-yielding, slow-growth businesses. The opportunity set spans a broad range of yield and growth profiles.
A significant portion of JEMI’s portfolio is invested in companies yielding between 3% and 6%. These businesses often combine dependable income with ongoing growth.
Quanta, a Taiwan-based manufacturer of electronic hardware, operates in a market with an established dividend culture and exemplifies this balance between steady cash returns and structural growth linked to global technology demand.
At the other end of the spectrum are companies with lower yields today but strong growth characteristics. Tencent is a good example. As one of China’s largest internet platforms it continues to benefit from developments in areas such as gaming, digital advertising and artificial intelligence. At the same time, it has also become more focused on capital discipline and shareholder returns.
Over time, companies like this can increase their contribution to portfolio income as their dividend policies evolve alongside earnings growth.
Higher yields are often found in financials. Grupo Financiero Banorte, a well-capitalised Mexican bank, generates attractive returns on equity and supports dividend distributions above 6%. In these cases, income is underpinned by strong domestic franchises and robust capital positions.
A structural shift, not a temporary trend
Emerging markets remain diverse, with different political systems, regulatory frameworks and economic cycles. Volatility has not disappeared. But the growing prevalence of dividends points to something deeper than a cyclical change.
Corporate behaviour has matured. Balance sheets are stronger. Governance standards have improved. Capital allocation frameworks are more transparent and more shareholder-focused.
For investors, this broadens the opportunity set. Dividends are no longer confined to a limited narrow group of traditional income sectors. Instead, they are becoming a structural feature of emerging market equities and a central component of shareholder returns.
That evolution does not diminish the growth story, but strengthens it. Emerging markets today offer not only the potential for expansion but also a tangible and increasingly reliable stream of income, reflecting how far the asset class has come.
Omar Negyal is portfolio manager of the JPMorgan Emerging Markets Dividend Income trust. The views expressed above should not be taken as investment advice.