Societe Generale Securities Utility 26Q3 Dividend Strategy: Moving from “High Dividend” to “High Quality”

The Zhitong Finance App learned that Societe Generale Securities released a research report saying that in July and August, the dividend sector ushered in a round of valuation revisions, and the bank believes that the market may gradually enter a rebalancing stage. From stock selection to stock selection, it is recommended to construct a dividend stock pool from the three dimensions of dividend sustainability, profit cash flow quality, and valuation and cost performance ratio: 1) dividend sustainability: requiring continuous dividends, and the current dividend is not significantly lower than its historical dividend center; 2) profit cash flow quality: screening companies with excellent profit cash quality through total net income/profit from operating activities, and measuring the ability of free cash flow to cover dividends using FCFF/DPS, taking into account the trend of improving cash flow; 3) Valuation and cost ratio: preferred dividend ratio TTM is relatively risk-free interest rate The highest-ranking target in history.

Societe Generale Securities's main views are as follows:

Currently, dividend assets have completed a round of valuation repairs, but the allocation value has not been overdrawn

The valuation returned to a relatively neutral range from a low level at the end of June: as of August 31, 2026, the China Securities Dividend and Dividend Low Wave Index PE-TTM were 8.7 times and 8.5 times respectively, all at the average of +1 times the standard deviation for the past year. In a low interest rate environment, the dividend rate spread of the dividend index compared to the yield on treasury bonds remains above the historical center: the dividend rate for the last 12 months of the China Securities dividend and the low dividend wave were 4.2%, compared to the 10-year Chinese treasury bond spreads at 54.9% and 54.2% in the past ten years, respectively.

On the capital side, the dividend sector recently showed a pattern of increasing long-term allocation strength and weakening short-term trading capital

On the insurance side, on the one hand, the overall equity allocation ratio of insurance capital is rising, and on the other hand, internal equity holdings continue to lean towards dividend assets. The total operating balance of 2026Q2 Insurance (personal insurance+life insurance) stocks and securities investment funds was 6.4 trillion yuan, +8.3% month-on-month, accounting for 16.2% of the balance used of funds, up 0.7 pct from month to month, the biggest increase in a single quarter since 2025Q3. As of 2026Q2, the market value of dividend asset holdings within insured stocks was 488.38 billion yuan, accounting for 30.4% of the total market value of insured capital holdings. This share has been in the upward channel since 2024Q3. In terms of ETFs, in addition to changes in dividend ETFs themselves, broad-based ETFs are also important variables affecting dividend funding. Inflows of broad-based ETF funds can indirectly contribute to incremental capital in the dividend sector through passive allocation of constituent stocks. The net outflow of dividend ETFs in July and August was 1.8 billion yuan and 7.6 billion yuan, respectively. The outflow was concentrated from July 20 to August 7, with a cumulative net outflow of about 11.4 billion yuan in the range; according to estimates, broad-based ETFs brought in passive net inflows of about 14 billion yuan in dividends in July, and turned into passive net outflows of about 5.4 billion yuan in August.

As can be seen from reviewing dividend assets at home and abroad, the core of high-quality dividends is not a static high dividend, but a stable and sustainable dividend capacity

At the valuation framework level, the dividend rate TTM risk-free yield spread forms the bottom of the valuation, and continued DPS growth determines the upward space for valuation; when interest spreads are historically high, asset income compensation is sufficient compared to bonds, and safety margins and allocation odds are superior; when rising stock prices drive a decline in static dividend rates, further valuation expansion needs to be digested by continuous DPS growth. 1) Dividend rate spreads define the bottom of the valuation: Represented by the US water industry, the Federal Reserve turned loose and long-term interest rates declined at the end of 2018, and the underlying dividend rate compared to US bonds changed from negative to positive and continued to widen, driving the upward trend in stock prices; the rebound in US bond yields in June 2021 led interest spreads to converge to near zero, and stock prices reached a stage high in September. 2) DPS growth rate spreads limit valuation top: Duke Energy's stock price is highly positively correlated with the DPS year-on-year growth rate and 10-year US Treasury yield spread. The year-on-year growth rate of DPS rose from 2.9% to 4.2% in 2015-2018. Interest spreads widened, and stock prices began to rise at the end of 2015; in 2019, the DPS growth rate declined first, compounding the rise in 2020 US bond yields, interest spreads converged and turned negative, and dividends weakened valuation support, and the stock price peaked in April 2020.

Mapping to A shares, take Changjiang Electric Power as an example. 1) Based on the dividend rate TTM 10-year Chinese treasury bond yield backtesting in the past 5 years, the historical quantile of interest spreads has a strong distinction between earnings for the next 12 months

The spread falls at 80% 100% and 60% 80%. The average return for the next 12 months is 10.5%, 9.8%, and the probability of increase is 66.1% and 75.7%; the spread is in the lower part of 0% 20%, and the average return for the next 12 months is 6.7%, with a probability of increase of only 4.3%. 2) Compared with the DPS year-on-year growth rate, 10-year Chinese treasury bond yield spreads and stock prices, the two are in sync with the overall trend. Since 2018, the inversion of interest spreads has continued to narrow and became positive in early 2021, and stock prices fluctuated upward to a high point in July 2022; as DPS growth fell back and interest spreads declined, stock prices traded sideways in mid-2022 and early 2024. There was a phased divergence in mid-2023 to mid-2024. The dividend style prevailed across the market. Combined with the implementation of the Wubai Power Plant, the long-term profit center raised expectations, and the main line of market transactions switched from having fulfilled the DPS growth rate in the current period to steady profit expectations. Entering 2025, there is a positive correlation between stock prices and interest spreads once again.

On August 21, the General Administration of Financial Supervision implemented the “Measures for the Management of Insurance Companies' Assets and Liabilities” to further strengthen the matching requirements between asset income and debt costs of insurers

Stock high-yield bonds expire, new fixed income yields decline, and personal insurance companies' net investment returns are under pressure; long-term gaps have been changed to monitoring indicators to weaken the demand for allocating ultra-long-term insured bonds; at the same time, supervision weakens the impact of fluctuations in the fair value of bonds and places more emphasis on real investment returns that can be implemented. In this context, high dividend equity with stable dividend attributes can increase portfolio recurring income and hedge against downward pressure on fixed income. Looking ahead, demand for high-dividend allocation of insurance capital will continue to expand, and allocation preferences will move closer to high-quality dividend assets with steady profits, abundant cash flow, and sustainable dividends.

Risk warning: Risk-free interest rate upward risk, risk of large macroeconomic fluctuations, industrial policy risk, etc.