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Mark Oliver is the managing director of iShares Australia.

A longing for income has been one of the responses to the sharemarket volatility of the past few years. However, larger forces than just a reaction to events are behind the behaviour change.

Two long-term demographic trends are driving investor appetite for income. The first change is the explosion in the number of pensioners around the world due to the ageing of the baby-boomer generation. According to a United Nations estimate, the global retirement population will almost triple from 737 million people in 2010 to 2 billion by 2050.

Ever-improving healthcare in the western world is leading to a situation where the number of years spent in retirement will roughly equal the number of working years accumulating wealth for retirement. Theoretically, two to three decades of leisurely retirement sounds idyllic.

Unfortunately, the reality is probably going to be less rosy. Many approaching retirement seem unprepared for life without a regular pay cheque. The maximum full Australian age pension is less than $700 per fortnight for a single person and around $520 each per fortnight for couples. Life on the age pension is austere and the ability of governments to sustain retirement-related spending could weaken.

The upshot is that income self-sufficiency in retirement is an imperative.

Dividend investing is one solution

While an in-depth look at income is standard for bond investors, most equity market followers have tended to focus on capital values because they are eye-catching and immediate.

There are several theories about investor attitudes to equity income:

- Dividend irrelevance tells us investors have no preference how they receive returns, be it through capital appreciation, share buybacks or dividends.

- Tax preference is a refinement of the first, and argues that investors prefer to minimise their taxes and assess investments on their net, after-tax return. This is especially the case in Australia where franking credits make equity investing particularly attractive.

- Bird in the hand holds that investors prefer to take a larger portion of their overall returns as soon as possible. That means they prefer to invest in high-yielding stocks rather than wait for an increase in the stock prices of low dividend or growth companies.

Dividend income is also generally less volatile than asset valuations, making it attractive to investors who place a greater value on predictable returns.

Admittedly, dividends' contribution to total return will often be swamped by capital moves over 12-month periods. Over time, however, the difference in accumulated wealth due to reinvestment of income is huge thanks to the power of compounding.