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Why Chinese dividend stocks are worth considering for 2026
The stocks have consistently delivered attractive returns over the past five years – making them a good portfolio consideration.
A quiet, powerful engine of wealth creation has been humming along in recent years, largely ignored by the mainstream narrative. Tucked within Hong Kong’s Hang Seng Index, which has gone through ups and downs over the past five years, a select group of stocks has delivered a masterclass in consistent performance in terms of decent price returns and dividend yields year after year: Hong Kong-listed high dividend Chinese state-owned enterprise (SOE) shares.
Decent dividend yield and price returns
The poster children for this thesis are, perhaps counter-intuitively, the titans of China’s oil and gas sector. While the global energy sector is dismissed as cyclical and politically fraught, China’s state-owned energy giants have been financial powerhouses. They have generated an average dividend yield of nearly 6% – a number that warrants attention in a world of declining interest rates.
The story gets better. This group has registered annualized price return exceeding 20% over the past five years. This consistent upward trajectory in share prices, occurring even as the oil price itself has been volatile and largely on a downtrend, requires an explanation. How has this decoupling been achieved?
SOE reform increases focus on boosting shareholder returns
The answer lies in the SOE reform initiated by the Chinese authority. The old perception of bloated, inefficient state-run companies is outdated. Under a mandate from Beijing to enhance shareholder value, these entities have embraced a new era of corporate stewardship. Operational efficiency, including steady output growth, is no longer a buzzword but a key performance indicator. This relentless focus on organic growth, combined with rigorous cost-cutting, has created an insulating effect to mitigate the nearly 20% decline in oil prices year to date.
Opportunity for SOE discount to narrow
Simultaneously, the SOE’s commitment to shareholders is now explicit and accelerating. These are not companies hoping to return cash; they are companies programmed to do so. They have not only demonstrated a track record of steady dividend payouts, but also proactively revved up their future payout targets. This is a clear signal that returning cash to shareholders is becoming a core pillar of their corporate identity, directly addressing the historical governance discount associated with SOEs.
More attractive than fixed deposits
Hong Kong-listed (H-shares) high dividend SOEs offer higher dividends than even fixed deposits. This high-yield proposition is music to the ears of mainland Chinese investors. Onshore fixed deposit rates have dwindled to sub-2%, with the PBoC expected to maintain a low interest-rate environment into 2026. This has triggered a growing hunt for yield. The Southbound Stock Connect channel has seen a record-breaking USD 177bn of funds from mainland China into Hong Kong equities so far this year. A meaningful portion of these funds has been strategically earmarked for high-dividend H-shares. These high-dividend stocks, which are no strangers to mainland investors, are natural and trusted beneficiaries of this relentless capital flow.
More attractive than A-shares
A savvy investor might ask: these companies are dual-listed; why not simply buy their A-shares listed in mainland China? The answer lies in the valuation gap. The H-share market, more influenced by global institutional capital, consistently prices these companies at a discount to their A-share counterparts. This structural inefficiency is a gift to the discerning investor. It means that for the same company, with the same assets and the same dividend in Renminbi, the H-share offers a yield that is typically 1-2 percentage points higher than the A-share counterpart. The H-shares, because of their income stability, also tend to outperform growth stocks which are vulnerable to fund rotation when geopolitical tensions rise.
Macro backdrop in 2026 conducive to quality dividend SOEs
Looking ahead to 2026, the macro picture strengthens the case for high dividend Chinese SOE stocks. Global growth is moderating, equity volatility is rising, and cash is becoming a less attractive asset as policy rates fall. In this environment, investor appetite will pivot towards quality: companies with visible earnings, sustainable dividends, and tangible price return potential. The Hong Kong-listed non-financial, high-dividend SOE shares, spanning energy, communication services and construction, are well positioned to meet this demand.
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Disclaimer
This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you.
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Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. For clarity, these investment products are not deposits and do not qualify as an insured deposit under the Singapore Deposit Insurance and Policy Owners’ Protection Schemes Act 2011. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
The information stated in this article is accurate as at the date of publication.
Global Market Outlook H2 2025: Positioning for a weak dollar
We are Overweight global equities. Policy easing worldwide, strong chances of a US soft landing and a weaker USD are supportive of risky assets. We favour diversified global equity exposure, within which we upgrade Asia ex-Japan equities to Overweight.
