He says they may look good compared with deposit accounts so investors could opt for the funds without realising that the yield target is calculated historically.
He says: “Firms will highlight that fact but I still think that people will be attracted by those numbers and that some people will be disappointed by the cheque they receive in the post.”
Pascal says despite some sectors pointing to resilient dividend returns, dividend has disappeared in some areas.
“The other issue is that the less companies pay dividends, the more that fund managers will start to chase those with higher dividends, which will push the share price higher and ultimately pull those yields back down,” he adds.
M&G dividend fund manager Richard Hughes says there are still opportunities for income growth and points to dividend cuts having already come earlier in the cycle.
Recent research conducted by M&G has revealed that 47 of the FTSE 100 companies that have reported their res- ults this year have increased their payouts by more than 10 per cent.
Hughes says: “Companies are cutting their dividends very early in this cycle. In past recessions, they have generally continued to pay dividends for the first one or two years pending an economic recovery after an 18-month recession.
“I believe this change has been sparked by fears over how deep and how long this recession will be as well as concerns over the availability of credit.”
Hargreaves Lansdown investment manager Ben Yearsley says: “Each fund has to be judged on its merits. Some will be able to do so but it will be difficult, given what has happened in the banking sector.”