Flexibility is key to success

INCOME investors should seek out fund managers who have adopted a flexible investment approach in response to the current dearth in dividends, says Tilney’s Jason Hollands.

He says: ‘I like equity income managers who have the freedom to back companies that might not be currently paying a dividend but are expected to in the near future – or are perhaps only paying a modest dividend, but have the potential to grow it from here.’

He suggests Threadneedle UK Equity Income, which he describes as ‘pragmatically managed’, investing in a mix of growth companies and dividend friendly businesses. Top ten holdings include healthcare giants AstraZeneca and GlaxoSmithKline, supermarket giant Morrisons and tobacco company Imperial Brands. The fund currently provides an income of around 4 per cent.

Finally, although searching for dividends might seem tricky at present, it is important to recognise that the companies cutting their payouts are navigating unchartered waters. A dividend reduction this year does not mean a company will not at some stage start increasing payments again.

Ben Lofthouse, of Janus Henderson, says: ‘Investors should remember that a temporary halt in dividends does not change the fundamental value of a company. That is driven more by the ability of the company to flourish and grow over the longer term. With interest rates set to be exceptionally low for the foreseeable future, shares will remain a vital source of income for investors.’

So keep calm and invest sensibly. Dividend income should hopefully return.