US pays lower dividends but “has higher-growth, higher-quality businesses”

Sam Witherow, an international equity manager at JPMorgan Asset Management who specializes in managing portfolios that prioritize dividend strategies, maintains an optimistic view on dividend distribution, at a time when investors are looking for the protection of funds that guarantee a return. Despite the uncertainty that remains in the US, the manager continues to look at the market, where he says that companies pay lower returns than their European counterparts, but offer greater growth potential.

“We still see a lot of really good opportunities in the US and we will maintain this policy of having an exposure that broadly corresponds to global indices,” the specialist argued in an interview with ECO, in London, on the sidelines of the event where the manager of the North American bank shared her perspectives for the markets.

In Europe, Sam Witherow is focusing on several sectors, maintaining a preference for “ utilities ”, the sector with the greatest weight in portfolios. For the expert, the Iberian blackout showed that this is a sector that will require large amounts of investment, creating opportunities for companies in the sector, such as electricity companies.

Still, it is Japan that has surprised the manager. “We are overweight Japanese stocks . There is a much broader universe of stocks for dividend investors,” he explains, adding that Japanese companies have been increasing their dividend distributions, while continuing to invest in share buyback plans.

2025 has been a year marked by the issue of tariffs and geopolitical conflicts. How are you positioning your portfolio in light of these challenges?

We run very defensive portfolios through the cycle. We try to give people that kind of downside protection in tough times. Regionally, the positioning is pretty neutral. In fact, it's the same as it's always been. What's relatively unusual for us is that we're overweight Japanese stocks .

There is a much broader universe of stocks for [dividend] investors like me in Japan now. Management teams have much more shareholder-friendly policies in general. We have exposure in Japan to technology, chemicals, financials, autos.

This year has been marked by a greater focus on Europe, to the detriment of the US. Traditionally, the North American market also pays lower rates of return.

The US pays lower yields , but it provides much better growth and much better dividend resilience . You get what you pay for. When you look at a stock-by-stock basis… Airbus versus Boeing or HSBC versus Citigroup, those kinds of comparisons, the big discount you see to Europe starts to narrow considerably.

The US has a lot of higher-growth, higher-quality businesses . So all of this tells us that we need to be quite balanced from a regional perspective, stay quite diversified.

In terms of sectors, we still see a lot of opportunities in the more defensive sectors of the market , in companies like McDonald’s and Coca-Cola . And also in sectors like utilities . This is the largest sector overweight still in the fund. And there we see cheap stocks, attractive dividends that are now, for the first time in a generation, benefiting from accelerated growth, due to the transformation of the electricity grid that is underway around the world.

Is the blackout in the Iberian Peninsula proof that we need more investment?

We need more. We need a higher energy load for things like electric vehicles, data centers . And we also need to invest more in the grid, as you know, in the Iberian Peninsula. Because of the increasing weight of renewables in the energy mix. That means a lot of investment is needed. And for utilities , that means more investment. Utilities are a huge opportunity. That's why they are the asset with the largest weight in the portfolio.

Defensive stocks were very cheap at the beginning of the year . They did well in the first quarter as we started to have these growth concerns around the world, particularly in the US. Since then, it's almost as if all the problems have disappeared and defensive stocks have underperformed a bit again.

We still think, given everything we know about the global environment and the very attractive entry point in terms of valuations, that we are happy with the portfolio exposed to these more defensive sectors and companies.

Another good example of this is stock market managers . These are businesses that really profit from volatility. The more speculation there is on futures contracts, or the more speculation there is on US interest rates, the higher the volume of trading. These are businesses that really profit from uncertainty. In April, we identified opportunities to get into technology and industrial stocks, predominantly. There are many attractive ways to profit from AI in dividend-paying portfolios like ours.

And how are they doing it?

We increased our position in Microsoft . We bought a new position in something called Eaton , which is an electrical business that provides electrical infrastructure for data centers . More generally, we increased our exposure to semiconductors slightly, because we see good signs that AI is being monetized now.

We still identify a lot of really good opportunities in the US and we will maintain this policy of having exposure that broadly matches global indices.

When you look at the opportunity set, specifically in dividend-paying companies, the US doesn't look expensive relative to other markets . Those Boeing versus Airbus comparisons, Boeing doesn't look expensive relative to Airbus and Citi doesn't look expensive relative to HSBC. They're very comparable businesses. In fact, they're trading very close together.

We still identify a lot of really good opportunities in the US and we will maintain this policy of having exposure that broadly matches global indices.

And in Europe, what kind of companies are you investing in?

Our European exposure is less defensive than our US exposure . In Europe, we have a very diversified exposure, but we have exposure to industrials and financials, banks, insurance, a little bit of technology, a little bit of retail and consumer staples. It's a very diversified investment, but it's less defensive than our US positioning , which is very defensive.

At the beginning of the year we were overweight European investments, but stocks have rallied sharply, especially in dollar terms, and we are starting to realize some gains from those positions . Clearly, German investments in infrastructure and defense will be very beneficial to parts of the German economy.

You mentioned that payouts , the portion of profits distributed in dividends, have been decreasing. Do you expect them to increase again in the coming years?

In fact, we don't expect them to increase. We expect dividend growth to be broadly in line with earnings growth . If both are growing at the same rate, the line stays that way. If earnings growth disappoints and dividends hold firm, the payout will increase.

Dividends will increase relative to earnings. And that can happen. It's already happening a little bit this year because earnings growth has been disappointing and dividend growth has been increasing. So we're already seeing that line starting to move up a little bit. You have to see some significant earnings disappointment for the payout to increase.

Which is not exactly good…

It's not good. So I can't choose what happens to the profits, but it's helpful for us that the dividends are relatively safer than the profits, it helps me generate a kind of attractive yield and a growing stream of returns that we can distribute to our clients.

Are investors looking for this protection in dividends?

I think so. We are seeing healthy flows into our funds. People are looking for [that protection]. The time when an investor probably wants to move away from the category is at the end of a cycle, when they want to underweight [investment] in defensive businesses and take some risk.

But what are your expectations in terms of the evolution of results?

The current trend for corporate earnings is negative. Earnings expectations are being revised downwards and, in the absence of positive news, I would expect this trend to continue for a while. The main driver of earnings weakness is a range of policies that could be reversed. And that could happen too.

So, we don't know. We just need to be prepared for a range of scenarios. And within our portfolios, we invest, not exclusively, but the majority of our portfolio in companies that can thrive even in a more pessimistic scenario. In our portfolio, we don't have large positions in, for example, companies that import cars to the US.

You mentioned in your presentation that companies want to pay more dividends. Are these dividends being financed through investment?

That’s a good question. People often say, “Oh, you know, your payout chart is low because of buybacks.” Share buybacks are a new thing. And buybacks are not included in that chart. And I say, that may be true. But if you look at that chart for each region, it’s the same for every region. And the U.S. has had significant share buybacks for 20 years. And buybacks didn’t take money away from dividends, they took money away from capital investment.

In the future, is it possible that share buyback plans will take money away from dividends as well as capital expenditure? It's possible. We're not seeing that. In fact, the companies that are doing the most capital expenditure, several of them have just started paying dividends. Meta and Alphabet, which together are probably going to spend, I don't know, $15 billion this year, both started paying dividends last year .

Is the phenomenon of share buyback programs, as a form of shareholder remuneration, reaching Europe?

It's happening all over Europe. It's happening all over Japan. It's starting to happen in emerging markets. It's becoming a much more widely accepted way of distributing dividends to shareholders. Now, for us as dividend investors, it's both a positive and a negative. Negative because that money could be paid out as dividends. I'd rather the company give me the cash. I want the cash dividend .

But on the other hand, it helps to increase the dividend per share. So it's easier for companies to increase dividends when they're reducing the number of shares. If they reduce the number of shares by 2% each year, the dividend per share for the same $100 in dividends increases by 2% each year, and that's useful for us to increase the dividend per share to distribute to our clients.

There are positives and negatives to this, but I also think it’s a sign that a lot of companies have seen the success of the U.S. equity markets. They’ve recognized that they need to take a more disciplined approach to capital allocation. And shareholders seem to want more share buyback plans. And I don’t disagree.

Valuations are something they care about. They want to support the stock price. It's about maximizing shareholder value. And if for some reason the stock is undervalued, it's management's job to try to close that gap. So maybe in the future we'll have half buybacks and half dividends. Yes, that could happen slowly, over time.

To us, the perfect company is one that pays very consistent dividend growth year after year, very reliable dividend growth. And in good times, in times of growth, it takes that extra liquidity and pays it out as a special dividend or as a buyback . It pays out a special dividend and holds back some cash to buy back shares when its share price is very low.

There has been a lot of talk about tariffs, what risks are you most concerned about at the moment?

The main risk to our strategy, in relative terms, is typically in periods of market euphoria, like the fourth quarter of last year. When Trump gets elected and everyone thinks “this is going to be amazing,” especially for the US market. There will be deregulation, lower taxes. We see a lot of cyclical companies and a lot of more speculative companies performing well.

Those are not the kind of businesses that we invest in. So, as we saw in the previous quarter, we lagged. We underperformed the market. As some of that enthusiasm has waned and faded this year, that's when we've caught up. But if we go into another period with a very euphoric sentiment, we'll probably underperform again in that period.

From an absolute perspective, signals that the US will be much stricter with tariffs will be negatively received by the markets. I also believe that signals that the monetization of AI is happening more slowly than expected will be negatively received by the market , precisely because of the relative weight of hardware , software technology and media in global indices, especially in the US.

*The journalist traveled to London at the invitation of JPMorgan AM