Large tech firms such as Meta have announced they will pay dividends for the first time in 2024, illustrating the opportunities equity income investors can find beyond “traditional” dividend-paying stocks, argues Richard Saldanha in this Q&A.

Read this article to understand:

  • The significance of tech firms' dividend payouts
  • How income investors can take advantage of long-term structural themes in the market
  • How to best manage income portfolios in a higher-for-longer interest rates environment

In February, Meta, owner of Facebook and Instagram, celebrated its 20th anniversary by announcing it would pay a dividend to shareholders for the first time. Later that month, another US tech giant, software firm Salesforce, followed suit. And in April, Google’s parent company Alphabet said it would pay its first dividend.1

These announcements grabbed headlines amid growing interest in dividend-paying companies. Dividends from S&P 500 firms rose to $588 billion last year, up 22 per cent on the figure from 2020. Bank of America analysts say they expect 2024 to be another “banner year for dividends”, citing the importance of regular income in an environment of macro uncertainty. “The dividend is back”, declared The Economist in the wake of the Meta news.2

In truth, the dividend never went away. Indeed, many tech firms have been paying dividends for some time – including members of the “Magnificent Seven” group, such as Microsoft, Apple and Nvidia – as have companies in other sectors not usually associated with shareholder payouts, such as industrials.

By gaining exposure to these sectors, income investors can diversify their portfolios and potentially take advantage of long-term structural themes, such as the growth of generative artificial intelligence (AI), cloud computing and network infrastructure.

By gaining exposure to these sectors, income investors can diversify their portfolios and potentially take advantage of long-term structural themes

Casting a wider net in this way, rather than restricting allocations to more “traditional” income sectors, could be a particularly useful strategy in the current environment. While fears of a recession have abated and labour markets and consumption look strong, inflation is not yet fully under control. Central banks are expected to cut rates – but when, and by how much, are open to debate.

In this context, expanding coverage across geographies and sectors should allow investors to identify a broad spectrum of firms that show evidence of recurring revenues and resilient growth, and which could therefore potentially deliver sustained income and capital growth over the longer term. This can help protect capital and provide a hedge against inflation.

In this Q&A, Richard Saldanha, manager of the Aviva Investors Global Equity Income strategy, shares his views on Big Tech, the implications of the higher-for-longer interest rates, and how income investors can manage their portfolios most effectively in the current environment.

Meta, Salesforce and Alphabet have announced dividends for the first time in 2024. What does this mean for income investors?

This news obviously garnered a lot of attention. However, the reality is that it marks the development of a trend we have been watching for a long time.

The likes of Microsoft and Apple have been paying dividends for years

The perception of dividend-paying companies is that they usually belong to mature industries with fewer growth prospects , such as telecoms or utilities. Meanwhile, high-growth tech companies have long had a reputation for focusing on other means of capital allocation, such as buybacks or mergers and acquisitions. But the reality is the likes of Microsoft and Apple have been paying dividends for years.

In 2019, S&P launched a new index, the Technology Dividend Aristocrats Index, to reflect the fact more and more tech companies were not only beginning to pay dividends, but also increasing their payouts.3 The companies in the index have tended to increase their dividends every year for at least seven years, through different economic environments and significant periods of recession (see Figure 1).

Figure 1: Performance of tech companies that pay growing dividends (index)

Past performance is not a reliable indicator of future returns.

Note: S&P Technology Dividend Aristocrats Index, launched October 7, 2019, first valuation date January 31, 2014.

Source: Aviva Investors, Bloomberg, Data as of April 16, 2024.

But while this is not an entirely new trend, the fact more tech companies are now entering the ranks of dividend payers is positive. Companies that announce dividends are making a firm commitment to shareholders that they are going to consistently deliver and grow their cashflows so they can support a dividend over time. And the presence of strong companies like Meta and Salesforce in the dividend-paying universe further broadens the opportunity set for equity investors with an income focus.

How do tech firms’ dividends compare with the broader market in terms of yield and dividend growth?

Though dividend yields are still not particularly high in the tech sector – Meta’s dividend equates to a forward yield of less than 0.5 per cent, for example – the prospects for dividend growth in these stocks is very attractive given that these firms’ cashflow growth is so strong (see Figure 2).

Exposure to tech firms also gives income investors the opportunity to participate in areas where we know there is a long runway for structural growth, notably generative artificial intelligence, but also cloud computing and digital payments.

Figure 2: Dividend growth over the five years to March 2024 (per cent)

Past performance is not a reliable indicator of future returns.

Note: Levels of income growth across sectors for the Global Equity Income strategy. Based on MSCI All Country World Gross TR Index using 5-year dividend growth.

Source: Aviva Investors, Aladdin, Explore – Blackrock Solutions. Data as of March 31, 2024.

You mentioned AI. What could be the wider implications of the generative AI boom and how are you playing the theme in your portfolio?

We invest in a range of companies that are linked to AI, not all of them in the tech sector. For example, some notable beneficiaries of AI are in the industrials sector. In fact, many industrials companies now have characteristics in common with technology companies, such as recurring revenues tied to software applications.

AI software adoption is rising rapidly, and large language models (LLM) and AI bots require massive computational power to process and analyse big datasets. High-end graphics processing units (GPUs), which are required for AI processes, generally need three-to-four times as much power as central processing units (CPUs). Thus, the demand for data centres is only set to grow as demand for data increases.

We are seeing ‘hyperscalers’, or cloud computing providers continue to increase their investments into building data centres

We are seeing “hyperscalers”, or cloud computing providers – namely Amazon, Microsoft and Google – continue to increase their investments into building these data centres. But this theme should also have implications for a number of industrial companies, which are not generally perceived as being driven by AI. Take Schneider Electric: around 20 per cent of its business and revenues come from data centres and it has recently said this part of its business is likely to grow in double digits for the foreseeable future.4

Other potentially overlooked beneficiaries of AI include suppliers of software and databases. These firms have proprietary datasets, which they supply to various end customers such as accountants, healthcare professionals or legal firms. The ability of LLMs to handle the vast amounts of data, but also boost the speed of decision making, is helping these companies improve the service they provide.

Turning from sectors to geographies, where do you see the best opportunities to hunt for dividends this year?

From a dividend growth perspective, the US continues to be the leading market and we have seen payouts grow among a number of the US-listed technology names we invest in. But there are attractive companies in other markets, which is why we believe a global approach is important.

From a yield standpoint, we find companies in Europe represent interesting opportunities and we are still seeing attractive dividends in that market. This is also true of some emerging markets in Asia.

There are also numerous great companies in the UK. Firms such as Unilever, the London Stock Exchange or RELX (information services) are industry leaders and have a global reach, which is important from a diversification standpoint. In our opinion, valuations of UK-listed companies also tend to be relatively more attractive than their US counterparts.

Last year was a challenging one for the “quality” companies usually targeted by income investors. How do you view that category now?

Two parts of the market that are prized for their quality and defensive characteristics, healthcare and consumer staples, were left behind in the Magnificent Seven-driven market rally in 2023. That created difficulties for many equity income investors. The situation was a point of contrast with 2022, when investors sought out these firms for their defensive characteristics amid the wider market drawdown.

We still see healthcare and consumer staples companies delivering resilient earnings and cashflows

But from our perspective, valuations in these sectors are looking particularly attractive now. While we have seen a relative re-rating in the market, we still see healthcare and consumer staples companies delivering resilient earnings and cashflows. In a world still characterised by macroeconomic and geopolitical uncertainty, we believe these companies have a lot to offer in equity portfolios.

Taking a step back to look at the macro picture, where do you see interest rates settle this year? And what would be the implications of a higher-for-longer environment for income investors?

Markets have been very quick to price in rate cuts. At the start of the year a total of seven cuts ­– around 170 basis points (bp) – were priced in for the US Federal Reserve (Fed). Until early February, investors were still expecting the first one to happen in March, but that expectation has been pushed back and there remains uncertainty as to the size and number of cuts we should expect in 2024.

Dividends are likely to remain the best defence against potentially sticky inflation

Major central banks are still expected to cut rates this year, and this is good news for equities in general, just as the rate hikes in 2022 were a headwind for markets. However, we do not believe the battle against inflation is won and rates could well remain higher for longer. In our opinion, dividends are likely to remain the best defence against potentially sticky inflation.

For equity income investors, a focus on companies that are growing their dividends is essential. Though this applies in all market environments, it is even more important when inflation could be uncertain and, by definition, interest rates could be higher for longer. In the latter scenario, investors should look for companies with strong cashflow generation who can grow their dividends well above inflation. Casting the net wider to cover non-traditional income sectors can help in this respect.

Subscribe to AIQ

Receive our insights on the big themes influencing financial markets and the global economy, from interest rates and inflation to technology and environmental change. 

Subscribe today

Key risks

Investment and currency risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Changes in currency exchange rates could reduce investment gains or increase investment losses. Exchange rates can change rapidly, significantly and unpredictably. Investors may not get back the original amount invested.

Emerging markets risk

Compared to developed markets, emerging markets can have greater political instability and limited investor rights and freedoms, and their securities can carry higher equity, market, liquidity, credit and currency risk.

Equities risk

Equities can lose value rapidly, can remain at low prices indefinately, and generally involve higher risks - especially market risk - than bond or money market instruments. Bankruptcy or other financial restructuring can cause the issuer's equities to lose most or all of their value.

Hedging risk

Any measures taken to offset specific risks will generate costs (which reduce performance), could work imperfectly or not at all, and if they do work will reduce opportunities for gain. 

Illiquid securities risk

Certain assets held in the strategy could, by nature, be hard to value or to sell at a desired time or at a price considered to be fair (especially in large quantities), and as a result their prices could be very volatile. 

Income risk

The investment objective of a strategy is to generate income, at times this may limit opportunities for capital growth.

Related views

Important information


Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 138 Market Street, #05-01 CapitaGreen, Singapore 048946.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.