Introduction
Despite the recent rate increase starting in 2024, Japan has maintained a zero interest rate policy for over two decades. From 1999 to 2024, domestic market participants faced significant challenges in finding competitive yields within the fixed income space. Consequently, dividends from the equity market emerged as an alternative income source for market participants searching for higher yield. In recent years, the introduction of the Nippon Individual Savings Account (NISA) tax-free policy on dividends and the Tokyo Stock Exchange (TSE) initiative to enhance shareholder returns have further boosted the appeal of dividend-paying stocks. The assets under management (AUM) of dividend index funds in the Japanese market have grown at an annual rate of 35.3% over the past decade, reaching a record USD 11.8 billion by the end of 2025 (see Exhibit 1). According to Morningstar, Japanese dividend funds attracted a net inflow of USD 4.49 billion from 2024 through April 2026.
In the search for reliable income, stocks with high dividend yield are often the focus, but the sustainability of dividend yield also plays a role. Especially for market participants preparing for retirement, a steady income stream may help to maintain a comfortable quality of life. A pure high yield focus may be vulnerable to dividend cuts from companies that don’t have solid financial strength and discipline. In a low rate environment like Japan before 2024, high yield may also come from rising debt.
The Dow Jones Dividend 100 Index Series takes a holistic view of a company’s ability to generate cash flow, commitment to maintain a long-term dividend policy and level of dividend yield. In the U.S., the Dow Jones U.S. Dividend 100 Index, launched in 2011, has demonstrated a live record of robust performance and sustainable high yield. It is tracked by multiple exchange-traded funds (ETFs) in various countries, including one of the most used dividend ETFs. Given this track record in the U.S. market, we expanded the framework to international markets with the launch of the Dow Jones International Dividend 100 Index in 2021. On July 22,2024, we further extended our index offerings to the Japanese market with the launch of the Dow Jones Japan Dividend 100 Index.
Index Construction
Exhibit 2 shows the construction of the Dow Jones Japan Dividend 100 Index. The index begins with S&P Japan 500 stocks that meet the liquidity requirement and have paid dividends for 10 consecutive years, which helps to identify companies committed to maintaining a stable dividend policy. Out of eligible stocks that have passed liquidity and dividend payment consistency screens, only the top 50% of eligible stocks ranked by indicated annual dividend (IAD) yield are qualified for fundamental selection.
Fundamental selection considers a company’s ability to generate free cash flow to sustain and potentially increase dividend distribution. Eligible stocks are ranked by four metrics: free cash flow-to-total debt ratio, return on equity (ROE), dividend yield and five-year dividend growth rate. The top 100 stocks with a high average rank of these four fundamental metrics become the final constituents.
The index is designed to ensure a well-diversified basket by targeting 100 constituents, applying float-market-cap weighting, and capping single-stock and GICS® sector weights. It reconstitutes semiannually in June and December.
