Grab a share of dwindling dividends

With dividends shrinking, a good bet for sustainable income may be investment trusts, which can often pay out more in lean times than others.

Without dividends, investing in stocks is a waste of time. Data from the London Business School and Credit Suisse show that US equities returned an average 6% a year since 1900. Without dividends, that falls to just 1.7%. So the news that the dividend swaps market now expects a 65% drop in dividends between the end of 2007 and 2009 is hardly reassuring for equity investors.

But some argue that this is overdone. Morgan Stanley points out that "even in the 1930s depression" dividends fell just 55%. So the swap market is implying either "total meltdown, or a compelling investment opportunity", says Andrew Lapthorne of Socit Gnrale. Those investors who think it's the latter, might well be eyeing the yields on equity income funds, particularly with savings accounts offering barely-there interest rates.

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