Introduction
Many of them pay regular dividends and these can be put to good use in an investment fund.
The UK is a particularly good place for investors to find income from equities as British companies are strong dividend payers, and some – except BP during the immediate fall out of the Deepwater Horizon oil spill – have come to dominate the sector.
But how substantial are the returns from equity income? The question is especially pertinent at present, as companies are starting to show signs of recovery and that is always an indication that dividend payments will start increasing.
UK dividend growth in the next 12 months is forecast to be 7.5 per cent, and in total for 2013 dividend is set to total £81.4bn.
But it is important in this excitement not to chase the wrong company in the search for yield. In the quest for getting the highest yielding stock, it is tempting to look at the wrong factors. Focusing solely on yield may not tell an investor enough about a stock, and whether it will last the distance, or if income will keep growing. Indeed it says nothing about the long-term viability of the stock.
A company with a low dividend yield but a clear dividend policy is preferable to one that has a high but unsustainable yield.
As the investment community gets to grips with the departure of Neil Woodford from Invesco Perpetual, so investors start to understand what it is about UK equity income funds they particularly like.
Melanie Tringham is features editor of Financial Adviser
This special report is sponsored by Fidelity. All editorial is indepedent.