This is according to Fidelity’s head of European equity research Henk-Jan Rikkerink (pictured), who says that the current economic environment of historically low interest rates and anaemic growth means that the hunt for income is stronger than ever.
With this in mind, he says that equities are the best place to find yield instead of focusing on traditional fixed interest assets. "In my opinion, it should be a no-brainer to now invest in equity income instead of fixed income," he said.
"We are living in a very low interest-rate world and with the generation of baby boomers approaching retirement, everyone is hungry for yield. I think the forgotten value of investing in high-quality income-generative stocks will reassert itself."
"With equity income, there are a huge amount of high quality, and more importantly safe companies, that are paying high and sustainable yields. In addition, equity investors are seeing much higher yields than four years ago."
"Analysts and industry experts have been saying that equities are the asset class to be in at the moment; I agree and I believe that there should be a big move to stocks from fixed income assets."
"About 30 per cent of top European companies’ equities are now yielding higher than their corporate debt," he added.
According to FE Analytics, the average UK Equity Income and Global Equity Income vehicles are currently yielding 4.36 and 3.86 per cent respectively. This compares with 4.29 per cent from IMA Strategic Bond and 3.99 per cent from IMA Corporate Bond funds.
Given that improving market sentiment is expected to make companies more willing to invest, Rikkerink says that now is a particularly good entry point for equity income.
"Companies are now sitting on a lot of cash and because of that they are running inefficient balance sheets," he added. "CEOs have been petrified of uncertainty and a repeat of a collapse like we saw in 2008; therefore they want a safe balance sheet instead of efficient ones."
"It will take some time before they feel a little more comfortable and start spending more, and then you could see a lot more issuance of corporate debt. In the meantime I think you could see companies taking part in more M&A activity."
"It’s a no-brainer for the stronger players of the market to buy the weak," he added.
Among Fidelity’s most renowned equity income funds is the five crown-rated Fidelity Moneybuilder Dividend portfolio, headed up by FE Alpha Manager Michael Clark.
The £506m fund, which is currently yielding 4.38 per cent, has returned 32.84 per cent over the last three years. This compares with 28.48 per cent from the IMA UK Equity Income sector average and 27.38 per cent from the FTSE All Share, which have both been more volatile.
Performance of fund vs sector and index over 3-yrs
Source: FE Analytics
It requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.22 per cent.
Despite his positive overall stance on income-generative stocks, Rikkerink warns that investors should not just dip into the market blindly.
"You have to make sure you are investing in a company whose dividend is safe instead of blindly moving into equity income," he said. "Though we are seeing a rally of sorts at the moment, if the share price loses value then all bets are off."
He added: "The companies that we think are strong are consumer staples and pharmaceuticals."
Along with typical defensive plays, Rikkerink is also a fan of the US tech sector – especially the giant multi-national Microsoft.
"While the pharmaceutical and consumer sectors offer good investments, we are also finding good dividend-growth opportunities in the US technology sector. Many of these stocks have now matured into high-return, cash-generative businesses with strong balance sheets and dominant market positions."
"A good example of this is Microsoft – a strong, cash-rich company that offers the prospect of attractive dividend growth."
"Microsoft has a dominant position in its core market because of its pricing power. What is good for investors is that it is currently hated by the market, so I think the share price will easily go up and with that so should its current yield of 4 per cent."
"I think it is a much better prospect than the junk bonds that are out there," he added.
FE data shows that there are a number of high-profile fund managers who are on the same wavelength as Rikkerink.
FE Alpha Managers Stuart Rhodes and Sebastian Lyon both count Microsoft as top-10 holdings in their funds, M&G Global Dividend and Troy Trojan.