European dividends supported by strong earnings but upside increasingly limited

Dividends continued to perform well since our last dividend swap monitor in May. Only S&P 500 dividends lagged their underlying equity index - European and Japanese dividends have broadly kept up with equities. As a result S&P 500 implied dividend yields declined further relative to other regions. This partly reflects the continued Tech leadership in equities and earnings revisions YTD, which tend to pay lower dividends. However, that might also make S&P 500 dividends more resilient during market drawdowns. The earnings backdrop has been supportive, although revisions remain concentrated in a few sectors. Earnings expectations have trended higher across most major markets, led by the US and North Asia due to strong earnings growth from AI capex beneficiaries such as semiconductor companies. In Europe, our equity strategy team upgraded their FY 2026 EPS growth to 15% (from 10%). Within Europe, earnings upgrades have been concentrated in Energy, Basic Materials, Technology and Financials