Why equity income may be coming back into fashion

Equity income has held up better than other sectors in market falls.

High inflation makes one in the hand look better than two in the bush and dividends recover from downturns, growth stock valuations may not.

FTSE 100 dividend cover is at its highest level since 2012 and reinvested dividends buy cheaper shares in falling markets.

Laith Khalaf, head of investment analysis at AJ Bell, comments: “The market is a pretty grisly place to be right now, as high inflation, rising interest rates, and economic pessimism have taken their toll on sentiment. The MSCI World Index is down 9% this calendar year in sterling terms, and it feels like there’s no place to hide from the current malaise. One area that’s been doing better than most though are equity income funds which invest predominantly in dividend-paying shares. As the performance table below shows, so far in 2022 equity income funds have held up a lot better than other areas of the market. This is a significant reversal of fortunes, especially for the UK Equity Income sector which has been a real laggard until this year.”