Low dividends under the microscope

Mr White says Threadneedle’s range of five income funds will not have their income targets altered, although he is clear this could change in the near future. So far, he adds, he has resisted deviating from the fund’s “plain vanilla” strategy, although some convertible bonds are looking attractive and could be included in a number of the portfolios shortly.

Another factor at work is sterling's recent depreciation. International firms that are paid in dollars will be more able to continue issuing dividends - including, Mr White cites, the 30 per cent boost to Shell’s recent dollar-denominated dividend payment to its UK shareholders.

While oil companies have typically been defensive in terms of sustaining dividend payments during previous downturns, if the oil price remains at roughly $40 per barrel, Mr White questions how viable this will be into 2010 and beyond. For example, while BP and Shell are paying dividends this year, they could be storing up cuts for next year, dragging the pain and uncertainty for investors on for longer.

In such an environment, Michael Clark, manager of the Fidelity Income Plus fund and recently launched Enhanced Income fund, stresses the importance of not simply screening for high-yielding companies.

He says: “You need to exercise caution and not necessarily just choose those with high yields, but understand the companies behind the dividends. For example, financials offer a high yield, but that is where a lot of dividend cuts have been made.”

That said, where sustainable dividend-paying companies, in less cyclical sectors, can be found – such as Reed, Pearson, Telefonica, Deutsche Telecom and French pharmaceutical company Sanofi Aventis – the payments tend to be roughly 5 per cent, which many view as a fair return in the current climate.