Equity income: Time to find uncorrelated strategies in the closed-ended world

Alternative routes to dividend income

It has become increasingly difficult to find value among equity income stocks as investors, starved of income from traditional sources like bonds and deposit accounts, and liberated pensioners searching for an alternative to crummy old annuities, have turned to equities to make up the shortfall.

Equities which pay a dividend have become very expensive and - because companies know that the higher the dividend they offer, the more support their share price will get - companies are paying out as much as possible and leaving themselves with little in terms of dividend cover for a rainy day. This makes their dividends vulnerable.  Concentration risk Further, because certain types of company tend to pay dividends while others do not - concentration among the funds that invest in these increasingly fragile equity income stocks has become a significant issue. According to the late...