How to Achieve Both Price Appreciation and High Dividend Income with Hong Kong Stocks Strategy?

Many investors view high-yield stocks as a “bond-like” income source with stable high dividends. However, in suitable market conditions, high-yield stock strategies can also benefit from appreciation potential, achieving a “dual income and growth” effect.

For example, the Hang Seng High Dividend Yield Stocks Index has achieved a total return of 68.4% over the past year ending February this year. Excluding dividends and potential dividend reinvestment returns, the index’s price return was also 57.6% during the same period. The index’s performance not only outperformed the broader Hong Kong stock market represented by the Hang Seng Index but also beat the Hang Seng Tech Index, and even global growth strategies like the Nasdaq 100 and Bitcoin. Two key drivers contribute to this:

1. Industry Allocation Favoring “Cyclical Heavy Asset” Sectors

The Hang Seng High Dividend Yield Stocks Index is heavily concentrated in cyclical sectors supported by heavy assets or tangible assets, including real estate, raw materials, industrials, and energy. In Hong Kong high-dividend strategies, since holdings in the technology sector are mainly hardware-related and exclude software (which is more asset-light), the technology sector is also classified as a “cyclical heavy asset” sector. As of the end of February, these five major sectors accounted for over 70% of the index1.

Over the past year, these sectors have benefited from tangible asset backing, meeting investors’ hedging needs against inflation, AI disruptions to traditional industries, and geopolitical risks. Additionally, when these cyclical sectors experience a recovery or enter an upturn phase, their stock prices tend to rise more significantly.

The Hang Seng High Dividend Yield Stocks Index has captured some of these industry recovery cycles over the past year. For example, in raw materials, many commodity categories experienced structural supply-demand imbalances. In industrials, trade tensions and Middle East tensions pushed up shipping prices, boosting shipping stocks. Meanwhile, about 20% of the index’s Hong Kong real estate holdings benefited from a recovery in the private residential market.

2. Unlimited Upside Potential of Pure High-Yield Strategies

Unlike covered call strategies that emphasize high dividends as a selling point, pure high-yield strategies derive dividends mainly from the stocks held in the portfolio, not from selling index call options. While covered call strategies may achieve higher annualized dividend yields under certain market conditions, they also sacrifice upside potential above the strike price of the sold call options.

The Hang Seng High Dividend Yield Stocks Index is a pure high-yield strategy, avoiding the limitations on upside potential caused by selling index call options. Therefore, when sectors within the index are in an uptrend or recovery phase, the growth potential is significant and unrestricted. Investors can choose different strategies based on their investment goals and risk tolerance.

For these two reasons, the index can achieve a “dual income and growth” effect—enjoying high dividends while capturing capital appreciation potential.

Data source: Hang Seng Investment, Bloomberg, as of February 28, 2026.

1 The Hang Seng High Dividend Yield Stocks Index is rebalanced annually in June according to its methodology.