Go East for income

Sarah Moore explains why investors should look to Asia in their search for income and growth.

Many high-yielding UK stocks have recently had to cut their "too good to be true" dividends most notably mining companies hit by falling commodity prices. But if you're looking for income, there is still plenty of opportunity beyond the UK's blue-chip companies, says Maike Currie in the Financial Times you just have to look overseas. "You'll find Asia leads the pack when it comes to offering the income investor's Holy Grail: income and growth."

There are 165 companies in the Asia-Pacific region (excluding Japan) that offer both a forecast dividend yield of above 4% and forecast earnings-per-share growth of about 10%, according to Liontrust Asset Managers. This compares to 33 companies in the UK, 62 in continental Europe and two in Japan only America beats Asia, with 174.

This potential can be put down to several factors, including Chinese companies' growing willingness to return cash to shareholders; new government tax policies in South Korea that are intended to discourage the country's family-run conglomerates from hoarding cash; and Singapore's attractively valued real estate investment trusts, which offer yields of 6%-7%.

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Despite the promise, the region is certainly not without risks, especially in places such as China, which "clearly cannot continue at the double-digit growth of recent years". Investors may suffer from "short-term hiccups" across the region as a whole. The key is to look for companies "with middling yields expected to grow over time", suggests Currie, rather than simply focusing on the highest-yielding stocks where dividends may not be reliable (good advice for any dividend investor).

There are a number of specialist Asian income funds available to UK investors. One of the most interesting is Aberdeen Asian Income investment trust (LSE: AAIF), which yields more than 5% and trades on a discount to net asset value of 8.2%, compared to a premium over the past ten years of 0.7%. It has performed disappointingly over the last three years, but has a good long-term record and shows recent signs of improvement.

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.