Selecting stock purely on grounds of dividend yield levels can have a ruinous effect on performance as investors who chased the high yields in the UK banking sector found to their cost in 2008 and 2009.

Stuart Rhodes, manager of the M&G Global Dividend Fund, said, ‘Last year was the worst for dividends in decades. Investors with high-yield strategies were led to companies and sectors where dividends were most vulnerable. Sadly, many high-yielding funds turned out to be the very opposite - low-yielders.’

Rhodes insists that dividend growth rather than yield is the key to identifying long-term out-performers. History shows that companies which consistently lift their dividends deliver a better return, even when the impact of dividend reinvestment is stripped out of the numbers.

Cochlear, an Australian manufacturer of hearing aids, is a good example of a company which investors with high-yield strategies would have missed. Ten years ago its dividend yield was 1.5 per cent. Since then Cochlear has increased the dividend each year by an average of 23 per cent. On a ten-year view, the shares were offering an actual yield of 12 per cent. The share price has also tripled over the last ten years.