But he cautions: “It is worth flagging that current payout ratios on UK shares are very high at 90 per cent, which leaves limited headroom for material increases unless earnings growth really starts to motor.
“Indeed we could see some unwind of the currency benefit that UK companies have had from the fall in the pound if sterling recovers some of its lost ground.”
The Henderson Global Dividend Index reveals dividends paid out by UK companies fell 3.5 per cent in 2016 on a headline basis, dropping to $92.9bn, their lowest level since 2012.
The devaluation of the pound alone reduced the UK total by $7bn.
Japanese companies’ dividends, meanwhile, soared in 2016, helped by a stronger yen currency but Mr Hollands believes there is more to come from the region.
“Japanese companies have historically hoarded cash but Japan’s new corporate governance code has fuelled a rise in payouts which could eventually lead to a transformational re-rating of Japanese equities,” he says.
Mr McDermott points out: “More generalist UK equity funds that still have a nice level of yield include Artemis Income (4 per cent) and Fidelity Enhanced Income (6.78 per cent). The latter, of course, uses covered calls to get the higher level.”
Ben Kumar, investment manager at Seven Investment Management acknowledges: “For an income-oriented investor, these companies seem like a great place to put some cash.”
But he believes it is important to remember dividends are discretionary, which means they can be cut at any time.
“While a company with a 5 per cent dividend may look attractive, that may not be sustainable if the company has a bad year, or indeed decides that shareholders’ interests are better served by reinvesting cash rather than paying it out,” Mr Kumar points out.
“The share prices of the underlying companies can be volatile. Many investors like income for its stability.”
Equities may meet the income requirements of some investors but for those who are prepared to look beyond equities, there are alternative assets with the potential to provide high levels of income.
Searching far and wide
In fact, George Efstathopoulos, multi-asset portfolio manager at Fidelity International, suggests investors should be diversifying their income streams as much as possible, across a range of asset classes.
He calls it a “holistic approach” to sustainable income and explains how it might work in practice.
“In the current environment we are adopting a barbell approach, balancing lower risk assets like US Treasuries on one side and higher yielding assets like local currency emerging market debt on the other.
