He says: “[The] UK dividend pool is incredibly concentrated around a few very large payers and these include giant oil and gas companies Royal Dutch Shell and BP, whose profits and dividends are very sensitive to changes in global oil prices.
"The five biggest dividend payers on the UK stock market accounted for 38 per cent of the entire UK dividend pot last year, which shows just how reliant (and fragile) the stock market has become on a handful of mega-cap companies."
Therefore, he believes there is less room for growth among big dividend payers, so investors looking for yield in this area might need to turn their attention elsewhere in the future.
Moreover, sterling's depreciation in 2016 may have had more of an effect on dividends than some investors may realise.
Capita Asset Services claims that more than 90 per cent of the huge £5.2bn rise in dividend payouts in the closing months of 2016 was funded by the pound’s weakness.
This suggests that any appreciation of the currency from its current low base could have drastic implications on the ability of these same companies to maintain the same level of payments.
Property income
Some income portfolio managers, such as Mr Jory, have responded to the yield challenge by widening their hunt to include less traditional assets.
Of the 60 per cent that Mr Jory and his team have allocated to equities, 17.5 per cent is invested in so-called “alternative funds” and 12.5 per cent in real estate investment trusts (Reits).
Mr Jory notes that there has been a proliferation of income-dedicated alternative fund launches of late.
While he accepts that some asset classes, including infrastructure equity and debt, are now in high demand, owing to their predictable and low-risk income streams, he’s found that other areas boasting similar characteristics, such as aircraft leasing funds, have been slightly overlooked by the market.
Thinking outside the box
Given that many of these high-yielding alternative equity funds have muscled their way into the mainstream, some fund managers now believe that finding the best income opportunities requires starting from a lower base.
Rather than fixate on who pays the biggest yield, as most of the crowd generally tend to do, the likes of Nick Kirrage at Schroders argue that smart investors should be trying to identify the next dividend growth stars.
“You want a cheap share price, high income and high dividend growth,” he says. “But every other investor also wants this. You normally have to sacrifice something. For us as value investors, we might buy a bank with no dividend yield. Banks are cheap and have the potential to rapidly grow dividends.”
