Not all dividend-paying companies are equal, and investors face the challenge of identifying firms that can offer sustainable payouts over the long term. Emerging markets are increasingly seen as fertile ground for income and capital growth, with around 90% of companies now paying dividends, and over a third offering yields above 3%.
Three microeconomic factors can help pinpoint companies with strong long-term income potential for shareholders:
Technology as a Platform
- Emerging markets have diversified significantly due to technological advancements, moving away from commodity dominance.
- Companies in these markets leverage ‘leapfrog innovation’, adopting advanced technologies like digital payments to outpace traditional growth methods.
- The new digital age, driven by artificial intelligence (AI), is a key investment trend. Technologies like generative AI models, electric vehicles, and autonomous vehicles demand substantial technological hardware, much of which is produced in emerging markets.
- Taiwan’s TSMC, Samsung Electronics, Mediatek, and Sporton International are significant players in the semiconductor and technology sectors, supplying essential components to global brands.
Green Transition
- The shift to low-carbon energy sources is accelerating, influenced by geopolitical events and the need to reduce CO2 emissions.
- Emerging markets play a crucial role in the energy transition, with significant developments in renewables and new technologies such as carbon capture and hydrogen fuel.
- Essential materials for green technology, like copper and platinum, are primarily mined in emerging countries, particularly in Latin America. The demand for these materials is expected to rise sharply by 2050.
- Investment in green projects is projected to increase, providing a growth platform for emerging market companies, despite a significant existing investment gap.
A New Generation of Consumers
- Emerging markets are experiencing exponential growth in purchasing power, driven by increasing working-age populations and rising incomes.
- By 2024, 113 million people are expected to join the global consuming class, with the majority residing in China and India.
- This consumption growth benefits dividend-paying companies across various sectors, including food and beverages, sportswear, household appliances, motor vehicles, and financial products.
- National brands are gaining preference over global names, allowing leading companies in emerging markets to consolidate their market positions.
In summary, the combination of technological innovation, the green transition, and rising consumer power makes emerging markets attractive for investors seeking long-term dividend opportunities.
