Investors are being urged to consider the long-term benefits of equity income as interest rates and income payable on other asset classes, particularly government bonds, have fallen dramatically following the global financial crisis.

A white paper entitled “The case for equity income investing” by the Newton group of asset management companies that form part of BNY Mellon Asset Management claims that income-focused investing will help to achieve a growing level of income as well as increasing capital.

Dividends tend to remain more stable than company earnings, offering protection in bear markets, and a yield-focused approach could also accelerate returns in a market recovery, the report states.

Businesses that pay a dividend don’t necessarily have lower growth potential, with Newton quoting a US study by Arnott and Asness that demonstrated a positive link between dividend payouts and earnings growth, possibly due to greater capital discipline.

“A dividend is evidence of a firm’s profitability and represents a commitment by the management of a company to return the cash flow it generates to shareholders on a regular basis,” said Newton chief executive Helena Morrissey.

“By investing over the long term in income generating equities, we believe investors could enjoy real growth in income together with long-term capital growth,” she said.

“By being allied to a robust global thematic investment process, [Newton’s] investment team is able to focus on continuing to try to deliver a steadily growing level of income distributions for new and existing clients despite challenging market conditions.”