Where to look for income in the £32bn dividend drought

Ben Yearsley, investment consultant at Fairview Investing, is also keen on trusts, particularly those in the renewable energy sector. He noted, however, investors should not put their whole portfolio into such “nice areas”.

What does this mean for clients

Advisers remained confident that even clients reliant on ‘natural income’ from equities would survive the dividend drought as they would hold a cash buffer.

Darren Cooke, chartered financial planner at Red Circle Financial Planning, said: “Clients reliant on ‘natural income’ are likely to see that fall and will either have to dip into cash buffers — I would hope most advised clients have one — or revert to taking funds from capital.

“The perceived wisdom is that taking money out of your investments when they are down is not a good idea but you may have no choice. Any good adviser will have planned for just this sort of downturn in markets and the client's plan should be robust enough to withstand it.”

Financial services director at Dobson and Hodge, Paul Stocks, agreed. He said for clients who did rely on now non-existent dividends, it would be a matter of “tightening belts, using cash or selling down assets”.

Looking forward

Liontrust’s Mr Husselbee said the return to a healthier dividend picture depended on how society and the economy moved forward.

He added: “[It] would require a return to more normalised earnings and, to a large extent, that will depend on the nature of a business and how social distancing rules will impact its operations as lockdown eases.”

Mr Yearsley said, in general, income from dividends would be under “severe pressure” in 2020, adding this was “a year for not chasing yield”.

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