A recent survey by fund house Legg Mason showed over 60% of UK investors’ top priority is generating income, while nearly half said their focus on income generating products has increased compared to five years ago.

Investment experts at a recent roundtable event hosted by Legg Mason  identified four assets classes that are the most likely to deliver income in the next five years.

US dividend growth

Richard Gillham, head of product specialists at Legg Mason, argued it is best to avoid assets with the highest yield and focus instead on dividend growth.

“Higher yielding assets are not sustainable, while dividend growth should deliver a yield over the long term,” he said.

“We see great opportunities in the US market and potential for companies to grow dividends dramatically ahead of earnings growth.”

US stocks began their rally in 2010 and, year to date, the S&P 500 is up nearly 20%. Some investors have been worried about a reversal, but Gillham thinks it will be a multi-year trend, comparing it to almost a decade of outperformance in emerging markets.

Japanese equities

Japanese equities have been the strongest performers so far this year, with the Nikkei index up 35% year to date. All panellists agreed Japan could see a big change in terms of dividend paying companies, and investors are showing more interest in Japanese equities as an income play.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said: “Japanese companies could strongly reappear on dividend registers, so Japan is my top pick for income potential.”

Dollar/sterling high yield

Regina Borromeo, co-manager of the Legg Mason Income Optimiser fund, sees renewed opportunities in high yield, especially in the US and UK. She has increased allocation to global high yield in the fund from 64% to 72% at the end of June.

“The sell-off in US high yield in June was the fastest in two years, so we have taken this opportunity to buy back assets that we were selling down at the end of last year at more attractive prices.”

European equities

European equities have been the laggard of the rally so far, with the Eurostoxx 50 up only 8.2% year to date. However, the European manufacturing and service sectors are showing signs of improvement.

Thomas Becket, CIO of Psigma Investment Management, said this is the beginning of a broader improvement trend in Europe, which makes European equities look attractive on a medium- to long-term basis.

“European equities have the best upside potential for dividends,” he said. “People are underestimating the recovery in Europe, but I believe growth there will return to 2% by 2014.”