Dividends matter, but two other yield drivers are often overlooked

If you ask most investors where they look for yield, the answers tend to be predictable. Banks, utilities, infrastructure and perhaps a handful of defensive consumer stocks would likely top the list.

Yet according to Epoch Investment Partners' Kera Van Valen, that thinking risks overlooking some of the most compelling opportunities in global markets today. In her view, investors who focus too narrowly on traditional income sectors or equate yield solely with dividends are missing a much broader universe of opportunities. As Van Valen explains:

"Yield can be found in all sectors, if you know where to look."

For Epoch, that starts with free cash flow rather than sector classifications.

"Because we begin with free cash flow rather than sector classifications, we are naturally led to a more diversified set of opportunities."

Van Valen argues that dividends are only part of the shareholder return equation. Buybacks, debt reduction and free cash flow growth can be just as important, creating opportunities in sectors ranging from technology and media to banking and consumer staples.

In the interview below, as part of Livewire's 2026 Income Series, she explains why shareholder yield is about far more than dividends, how to avoid yield traps, where AI is creating opportunities, and two stocks she believes can deliver attractive returns in the years ahead.

Yield is much bigger than dividends

One of Van Valen's central arguments is that many investors continue to think too narrowly about income.

While dividends remain an important source of returns, she believes investors should also focus on share buybacks and debt reduction, which can create significant value for shareholders over time.

"The main way in which investors may think about income too narrowly is that they equate yield solely with dividend yield, treating it as the only source of cash return," she says.

In Epoch's framework, shareholder yield consists of three components: dividends, buybacks and debt reduction.

Buybacks increase the ownership stake of remaining shareholders by reducing the number of shares on issue, while debt reduction strengthens balance sheets, lowers interest costs and increases the amount of future earnings available to equity holders.

Rather than viewing these capital allocation decisions separately, Van Valen believes investors should focus on whether a company's free cash flow can sustainably support all three.

"The key question is not which lever is most attractive, but whether the underlying free cash flow can sustain and grow total distributions over time."

She says management teams are showing increasing discipline in this area, particularly among larger, mature businesses with strong balance sheets and robust cash generation.

Looking beyond the obvious AI winners

Artificial intelligence remains one of the dominant investment themes globally, but Van Valen believes many investors are overlooking parts of the opportunity set.

Rather than chasing the most heavily discussed names, Epoch looks for businesses capable of translating AI-related investments into stronger cash flows and ultimately greater shareholder returns.

Importantly, she says the opportunity is expanding beyond semiconductors and hyperscalers.

"While much of the attention remains on semiconductors and hyperscalers, artificial intelligence is increasingly extending to other parts of the value chain like industrials, infrastructure, and service-oriented businesses, where cash flows are boosted by artificial intelligence investments."

She also sees productivity gains emerging across a wide range of industries as companies adopt AI tools to improve efficiency and profitability.

For investors, this creates opportunities to access AI-related growth without necessarily paying the premium valuations attached to the market's most obvious beneficiaries.

"These derivative beneficiaries can be particularly compelling, as they often combine structural tailwinds with more attractive valuations and clearer paths to capital return."

How to spot a yield trap

Van Valen warns that a high yield is not always a sign of value. In many cases, elevated yields can indicate deteriorating fundamentals rather than attractive investment opportunities.

Her starting point is always free cash flow sustainability.

"One of the most common warning signs is a disconnect between yield and fundamentals, where a high dividend is not supported by sustainable free cash flow."

Other red flags include excessive leverage, weakening cash generation and management teams prioritising short-term distributions at the expense of long-term business health.

"We pay close attention to whether a company has the capacity to maintain and grow its distributions over time."

This focus on cash flow analysis helps separate genuine shareholder return opportunities from companies whose payouts may ultimately prove unsustainable.

Two stocks Epoch likes today

Among Epoch's newer portfolio additions is Scotts Miracle-Gro (NYSE: SMG), a leading North American lawn and garden business with a portfolio of well-known consumer brands.

Van Valen likes the company's combination of strong cash generation, an attractive and growing dividend, and management's commitment to strengthening the balance sheet.

The company is currently prioritising debt reduction, with share buybacks expected to become a larger focus once leverage targets are achieved.

Epoch believes management initiatives around innovation, customer engagement and e-commerce can support both sales growth and margin expansion, creating a pathway for further free cash flow growth and shareholder returns.

Another high-conviction position is Cisco Systems (NASDAQ: CSCO).

While many investors still associate Cisco primarily with networking hardware, Van Valen points to the company's growing mix of recurring service revenues, strong competitive position and disciplined capital allocation.

She notes that cash flow is supported by network upgrades, product refresh cycles and a growing services business, while relatively modest capital expenditure requirements support strong free cash generation.

Most importantly, Cisco has demonstrated a clear commitment to returning cash to shareholders.

"The company has committed to return in excess of 50% of free cash flow back to shareholders in the form of dividends and share repurchases."

For Epoch, Cisco exemplifies how mature technology companies can combine innovation, structural growth and attractive shareholder returns.

Building resilience through cash flow

Van Valen believes a shareholder-yield framework is particularly well suited to today's concentrated and volatile market environment.

Rather than relying on valuation expansion, which can be heavily influenced by sentiment, the approach focuses on the factors that ultimately drive long-term shareholder returns - cash flow generation and disciplined capital allocation. As Van Valen puts it:

"By focusing on companies that generate and return cash, we believe investors can participate in equity upside while also benefiting from a degree of downside protection."

The common thread running through Epoch's approach is not sector, style or theme. It is free cash flow.

In a market increasingly dominated by narratives, that focus on cash generation, capital discipline and shareholder returns remains a powerful investment filter for those seeking sustainable income.