Aegon investment manager Mark Peden said we’re witnessing a “seismic shift” in the dividend returns outlook.

He said that £1.27trn is forecast to be returned to investors through dividend pay-outs this year, which is a “remarkable turnaround” from the darkest days of the Covid crisis.

Mr Peden said: “Almost exactly three years ago, in the depths of the Covid-induced market sell-off, companies were cutting or suspending dividends left, right and centre and analysts were predicting big cuts to global dividends from which they would take years to recover.

“Yet for all the cataclysmic predictions, pay-outs took just one year to bounce back.”

He said last year’s volatility served as a reminder that dividends are typically much less variable than earnings and can provide an important source of total return in challenging markets.

He reckons that deep value investment propositions, which succeeded in 2022, have now likely run their course. Instead, investors should now look toward “quality” equities for their portfolios.

He said: “Deep value areas of the market characterised by companies with lower-quality earnings and high debt levels had their day in the sun last year.

“Such rallies tend to be sharp but also short-lived, which played out in the first quarter of this year as we saw momentum fade abruptly.”

He said investors are questioning whether such companies can continue to be successful in a recessionary environment.

In addition, with interest rates looking like they will be higher for longer, indebted companies will see more of their cashflow eaten up by interest payments, rather than being available to distribute to shareholders, he said.

Mr Peden believes a focus on quality dividend-paying companies – those with strong balance sheets and high returns on equity – can be a powerful driver in the long run and is likely to be especially important this year.

He said: “The top quintile of companies, based on quality within the MSCI All Country World Index, has significantly outperformed the wider market over time. That quality factor should prove invaluable against a backdrop of slowing economic growth.”