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JPMorgan: Long-term equity income investing should combine high dividend yield and dividend growth strategies

Institution
JPMorgan
Date
2026-07-14
Authors
Mika Inkinen, Nikolaos Panigirtzoglou, Krutik P Mehta, Mayur Yeole
Company
-
Ticker
-
Industry
AI
Rating
-
NeutralLow confidenceThe report argues that the AI boom may eventually normalize, and that the next decade is likely to resemble the normal business-cycle environment of 1963 to 1989, so long-term equity income allocation should combine traditional high dividend yield and dividend growth strategies.
AuthorsMika Inkinen, Nikolaos Panigirtzoglou, Krutik P Mehta, Mayur Yeole
CoverageOther
Asset classesEquity、Derivatives
Business segmentsdividend_yield_strategies、dividend_growth_strategies、total_shareholder_yield_strategies、option_augmented_equity_income_strategies
Research firm divisions/subsidiariesJPMorgan（Other）、J.P. Morgan Securities plc（Other）、J.P. Morgan India Private Limited（Other）

AI summary card

JPMorgan: Long-term equity income investing should combine high dividend yield and dividend growth strategies

The report argues that the AI era has caused traditional high dividend strategies to significantly underperform the broader market, but if the next decade sees a return to a normal business cycle, long-term investors should combine traditional dividend yield strategies with dividend growth strategies rather than bet on a single income style.

This is not an individual stock rating report; the strategy conclusion is that long-term investors should combine traditional high dividend yield strategies with dividend growth strategies.
Long-term strategyEquity incomeDividend growthHigh dividend yieldFama-French factorsAI eraCovered calls
  • The post-pandemic and AI era from 2020 to 2026 has been unfavorable for traditional high dividend yield funds, with such strategies significantly lagging the broader market due to underweight positions in technology and growth sectors.
  • The report judges that the next decade is more likely to resemble the normal business cycle of 1963 to 1989 rather than the current AI-dominated environment; the dividend factor may be strongly positively correlated with the value factor, and strongly negatively correlated with market beta and profitability factors.
  • Dividend growth strategies provide a good balance between volatility-adjusted returns, stability in drawdown performance, and some exposure to technology/growth, making them the long-term equity income complementary strategy most favored by the report.
  • High dividend yield strategies are more tilted toward value and defensiveness; option-enhanced strategies are more resilient during some volatility shocks; total shareholder yield strategies have higher return potential but are more pro-cyclical and have weaker risk-adjusted returns.

Report interpretation

Overview

This report discusses which equity income strategy long-term investors should adopt. JPMorgan points out that traditional equity income funds targeting high dividend yield significantly underperformed the broad market in the post-pandemic and AI era from 2020 to 2026, mainly due to underweight positions in technology, communication services, and consumer discretionary, as well as overweight positions in sectors such as financials, consumer staples, energy, and healthcare. The report compares four types of strategies—high dividend yield, dividend growth, total shareholder yield, and option-enhanced equity income—and evaluates them across different macro and factor cycles.

Core views

The core view is that no single equity income strategy can outperform in all market environments; allocation depends on investor objectives and the prevailing market regime. If the AI boom eventually normalizes, the next decade may look more like the normal business-cycle environment of 1963 to 1989; in that environment, asset allocation should consider the strong positive correlation between the dividend factor and the value factor, the strong negative correlation with the market beta factor, and the strong negative correlation with the profitability factor. Based on the balance offered by dividend growth strategies between volatility-adjusted returns, relative stability during drawdowns, and some technology/growth exposure, the report recommends that long-term equity income investors combine traditional dividend yield strategies with dividend growth strategies.

Analysis framework

The report first uses long-term factor correlation analysis to explain the historical characteristics of dividend yield strategies, then identifies by phase how the relationship between the dividend factor and Fama-French factors changed across different market regimes from 1963 to 2026. It then compares cumulative returns, annualized returns, information ratios, and drawdown performance across different equity income ETF and mutual fund categories since 2014, and further analyzes each strategy's excess returns versus the S&P 500 in relation to the market, value, size, profitability, conservative investment, dividend factor, and interest rates.

Methodology notes

  • factor_analysisFama-French factor correlation framework

    Uses factors such as Mkt_RF, SMB, HML, RMW, CMA, and DY to analyze equity income strategy exposures.

    Using monthly data from 1963 to 2026, the report observes the correlations of the dividend yield factor with market beta, size, value, profitability, and conservative investment factors, and uses this to assess the defensiveness, value characteristics, and growth exposure of equity income strategies across different market environments.

  • regime_analysisDY factor correlations across sub-periods

    Divides 1963 to 2026 into five market phases to observe changes in dividend factor relationships.

    The report identifies five phases: the normal business cycle from 1963 to 1989, the internet bubble from 1990 to 1999, the credit bubble and global financial crisis from 2000 to 2009, the low-rate environment from 2010 to 2019, and the post-pandemic and AI era from 2020 to 2026, and believes the next decade is more likely to return to factor relationships similar to the normal business cycle.

  • fund_strategy_comparisonequal-weighted ETF and mutual fund category comparison

    Compares equity income fund performance on an equal-weighted basis by strategy category.

    The report uses up to the ten largest ETFs and mutual funds in each category to compare returns, information ratios, and drawdowns across high dividend yield, dividend growth, total shareholder yield, and option-enhanced equity income strategies, in order to reflect strategy-level outcomes rather than results dominated by a single large fund.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

  • High dividend yield strategy
    A traditional core equity income strategy, tilted toward current income and value/conservative investment exposure.
    Strengths
    Provides some downside protection in most drawdown periods, has lower market factor loading, and suits investors seeking current income and defensive characteristics.
    Weaknesses
    Typically underweights technology and growth sectors, and may continue to underperform in AI- or mega-cap-tech-led markets.
    Comparison
    Compared with dividend growth strategies, it is more tilted toward value and shorter duration; compared with option-enhanced strategies, it retains more equity upside but offers weaker volatility protection.
    Risks
    If the market continues to be led by technology and growth stocks, the strategy may face ongoing opportunity costs.
  • Dividend growth strategy
    The complementary equity income strategy most favored by the report, suitable for combining with traditional high dividend yield strategies.
    Strengths
    Provides a good balance between volatility-adjusted returns, stability of drawdown performance, and some exposure to technology/growth factors.
    Weaknesses
    Less defensive than high dividend yield and some option-enhanced strategies.
    Comparison
    Compared with high dividend yield strategies, it has a greater quality/growth tilt; compared with total shareholder yield strategies, it is more suitable as a core income allocation.
    Risks
    It may come under pressure during periods of rising rates and stress on long-duration assets.
  • Total shareholder yield strategy
    An equity income strategy that combines dividends and buyback yield.
    Strengths
    May offer higher absolute returns in the post-2020 period and more technology/growth exposure.
    Weaknesses
    Buybacks are more discretionary and pro-cyclical, with higher volatility and weaker risk-adjusted returns.
    Comparison
    Compared with dividend growth and high dividend yield strategies, it is closer to the broad market and more pro-cyclical.
    Risks
    In environments of liquidity stress, earnings pressure, or shrinking buybacks, drawdowns may be amplified.
  • Option-enhanced equity income strategy
    Enhances income by collecting option premiums through methods such as covered calls.
    Strengths
    Showed relatively stable resilience during brief and sharp volatility episodes such as 2015, 2025, and 2026, with somewhat negative market factor loading.
    Weaknesses
    Trades away part of the equity upside in exchange for option income, so absolute returns may be lower than other strategies.
    Comparison
    Compared with high dividend yield strategies, it places more emphasis on hedging and income enhancement; compared with dividend growth strategies, participation in growth upside is more limited.
    Risks
    In strong rebound phases, gains may be capped by sold call options; the 2020 shock showed that the strategy can still suffer significant absolute losses.

Key data

  • Long-term factor sample period1963-2026The correlation matrix is based on monthly data.
  • Next decade assumptionCloser to the normal business cycle of 1963-1989The report believes the AI boom may eventually normalize, and the future environment should not simply extrapolate the post-pandemic and AI era of 2020-2026.
  • 1963-1989 DY and HML correlation+0.80The dividend yield factor is strongly positively correlated with the value factor.
  • 1963-1989 DY and CMA correlation+0.75The dividend yield factor is strongly positively correlated with the conservative investment factor.
  • 1963-1989 DY and Mkt_RF correlation-0.50至-0.68The dividend yield factor is strongly negatively correlated with the market beta factor, reflecting a degree of defensiveness.
  • 2010-2019 DY and HML correlation+0.07In the low-rate environment, the search for yield caused dividend yield to decouple from traditional value characteristics.
  • 2020-2026 DY and HML correlation+0.76In the post-pandemic and AI era, the correlation between dividend yield and the value factor rebounded.
  • J.P. Morgan global equity research rating distributionOverweight 53%，Neutral 36%，Underweight 12%As of 2026-07-04; this table discloses the distribution of ratings across research coverage, not a rating on any single stock in this strategy report.

Impact & implications

For long-term asset allocation, the implication of the report is that equity income strategies should not be judged solely by current dividend yield. High dividend yield provides value and defensive characteristics, but can create opportunity costs during technology/growth-led phases; dividend growth is more balanced across quality, growth, and income; option-enhanced strategies can improve resilience during some volatility shocks but sacrifice upside; and total shareholder yield strategies are more pro-cyclical because they rely on buybacks. Long-term investors should combine different strategies according to income needs, defensive needs, growth exposure, and drawdown tolerance.

Risks

  • If AI and mega-cap technology leadership persists longer, income strategies with low technology exposure may continue to underperform the broad market.
  • The factor relationships of dividend yield strategies are clearly regime-dependent, and historical correlations may not extrapolate stably.
  • High dividend yield strategies may be affected by earnings declines, dividend cuts, and concentrated sector exposure.
  • Total shareholder yield strategies rely on buybacks, which are more discretionary under stress and may amplify pro-cyclical risk.
  • Option-enhanced strategies trade away part of the upside for option income and may lag in strong bull markets or rapid rebounds.

What to watch

  • Whether the AI trade cools and the market shifts from a concentrated mega-cap tech rally toward more normal business-cycle rotation.
  • Whether the correlations of the dividend factor with value, market beta, and profitability factors return to a pattern similar to 1963 to 1989.
  • Whether dividend growth strategies continue to outperform high dividend yield strategies in returns, information ratio, and drawdown performance.
  • Whether buyback activity within total shareholder yield strategies contracts with changes in earnings and liquidity cycles.
  • Whether option premium income in option-enhanced strategies can continue to offset part of the downside in high-volatility environments.
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