With record low rates for so long, investors have rushed to dividend-paying stocks in an effort to recreate the incomes they once enjoyed from cash, leaving many stocks looking over-valued.

However, despite the gains already seen, opportunities remain in the sector, according to Michael Clark, manager of Fidelity’s £706m MoneyBuilder Dividend and £240m Enhanced Income funds.

“The uncertain economic environment of recent years, which began with the very deep recession of 2008 and the low rate of growth subsequently, has meant that companies have stockpiled cash, unwilling to expand by investment or by acquisition,” he said

“Companies have therefore been run conservatively, balance sheets are in good shape, and there is plenty of cash flow for dividends. As the economy continues to improve, there should be room for dividend growth in the coming years.”

Clark has highlighted a number of stocks where he sees real dividend growth potential, naming five companies income-hungry investors could snap up.

BP

The oil major slashed its dividend following the Gulf of Mexico disaster in 2010, but said in its third quarter results last year it would look to increase dividends and share buy-backs.

“BP has materially restructured and the operational turnaround is beginning to come through,” Clark said. “On the back of this progress, management is set to reward shareholders by raising dividends each year. On every valuation measure, price to book and price to earnings, it made sense to add BP to the portfolio.”

Lloyds

Lloyds confirmed last month it is unable to pay a dividend for the time being, but gave guidance on future dividend policy.

“The bank will pay 50% of earnings in the medium term,” Clark said. “If we assume that medium term means two years from now, this suggests a dividend yield in 2016 of 5.2%.”

HSBC Holdings

A weak share price not seen since the Asian financial crisis – the bank is down 12.5% in the last year alone – creates opportunity, according to Clark.

“HSBC has good exposure to fast growing markets in Asia and has the best banking book in the UK, with very low exposure to high risk property loans,” he said.

“Over the longer-term, the development of capital markets in China and the greater convertibility of Renminbi should be major positives for HSBC. Overall, I prefer this bank over other UK and European banks as it is a steady compounder and has a proven and successful business model with long term viability.”

GlaxoSmithKline

“UK pharmaceuticals major Glaxo is a world-class business with a strong margin and it is a low-risk stock,” Clark said.

“It is likely to deliver mid to high single digit earnings growth, and remains a good source of income with a divided yield of about 5%. The valuation is a trough of its very long-term range.

“Glaxo’s pre-emptive decision to invest heavily in R&D is clearly paying off, and the company has won approval for two important respiratory products and one HIV drug, which should be beneficial for the company in the longer term.”

Tesco

Clark expects further improvements from the supermarket over the next two years as it continues to remodel its stores.

“An improving trend in consumer confidence will undoubtedly improve the outlook for Tesco. Capital spending across the group has declined and we also see this having a positive impact on operational cash flow.

“With Tesco’s shares continuing to trade at attractive valuations, I remain a keen long-term holder of the stock for both capital gain and decent long-term dividend growth.”