Threadneedle’s fund manager, global equity income, Stephen Thornber said that despite the winding back of quantitative easing, yield stocks will deliver strong returns.
“Successful income investing is about identifying businesses that are paying high and growing dividends while sustaining a robust financial position,” Mr Thornber said.
“In a rising interest rate environment, the importance of focusing on dynamic, growing companies cannot be understated.
“There is a misconception that performance of dividend stocks is closely linked to interest rates. In fact the majority of dividend stocks are priced by the market on a ‘total expected return’ basis against other stocks with similar prospects,” he added.
Mr Thornber said that given the strong performance of the equity market over the past few years, there was a concern that many stocks were overvalued.
Despite this, equities remain attractive, with valuations at or below long-term averages although investors should still “exercise caution”, he added.
“We are taking particular care when selecting companies in the US, where valuations are higher, but having said that, we feel the strong prospects for the US economy support higher valuations,” Mr Thornber said.
