IT HAS been a bumpy few days on the international markets.

Last week’s brinkmanship on Capitol Hill set a disconcerting tone for the week. The troubles in the eurozone haven’t helped either.

At the time of writing, the FTSE-100 share index has experienced six days of straight losses and is 13% (or 750 points) lower compared with its level of a month ago.

Equity markets appear to have lost confidence in politicians in the US and Europe to provide leadership in tough economic times.

In addition, there are concerns over a slowdown in US economic growth, following weak data for the first two quarters of 2011 and over the ability of Italy and Spain to refinance their government debts at affordable rates.

In uncertain markets, it is often difficult to see through the stormy clouds (of which there are many) for the potential of clearer air beyond. However, the recent history of share dividends provides one ray of hope.

Capita Registrars produces a quarterly report on the income provided by shares, and the most recent version on UK dividends paid in the second quarter showed the payout of the largest level of equity income for three years.

Cash returns to shareholders, predominantly made up of dividends, increased to £19.1bn in Q2 2011 from £15bn in Q2 2010.

The biggest rise was from mining stocks, which returned £1.85bn in the period, a 300% rise over the same period in 2010.

BP re-instated its quarterly dividend, at £900m. However, this is only half of the £1.8bn the oil giant returned during Q1 2010.

Capita has increased its forecast for full year 2011 dividends by £1.8bn to £66bn, the highest annual total since 2008.

The income yield from the UK equity market is 3.44%. Over time, the income stream from dividends should rise with inflation. For example, Unilever, the producer of household items such as Domestos, Pot Noodles, Dove soap, PG Tips tea and Radox, has recently reported first half results for 2011. Dividends for the first six months of the year were 12% higher than for the same period in 2010, mostly on the back of higher selling prices for their vast array of consumer goods.

By contrast, the total return for a UK 10-year government bond is 2.6%.

For medium to long-dated investors, UK equities appear much better value on a relative basis. In addition, the returns from cash accounts are likely to remain low for an extended period, further boosting the appeal of equity investments as a source of income over the long term.

Although the differences in yields between UK equities and UK government bonds were greater in the financial market meltdown of 2008 and 2009, markets do not currently feel as uncertain as the outlook that existed during that period.

Companies are much healthier, with strong balance sheets, and global blue-chip companies (preferably with some emerging market exposure) demonstrating good dividend yields are particularly attractive for the long-term.

However, finding the market low point in any correction is neither a science nor an art.

But, if you’re looking to generate income from investment cash, you could do worse than consider the rising dividends generated by equity markets.

John Haynes,

Head of Research,

Investec