First, the good news: the latest earnings season showed dividends from ASX 200 companies are in reasonable shape. More than three-quarters of companies maintained or lifted their interim dividend and a record number paid a dividend, CommSec research shows.

Now, the bad news: investors are paying a full price for companies with reliable, attractive dividends. The infrastructure, utility and Australian Real Estate Investment Trust (A-REIT) sectors look increasingly overvalued as more investors chase yield.

After recent falls, banks look better value but come with greater regulatory risk and potential headwinds from a slowing housing sector. If US interest rates rise faster than expected this year, interest-rate-sensitive sectors such as AREITs will struggle.

The yield trade looks increasingly crowded. With Australia’s cash rate at a record low – and heading lower in this columnist’s opinion – an army of income investors is forced to own a small group of equities for yield, even though valuations are stretched.

For the Switzer Super Report in January, I nominated the Commonwealth Bank (CBA), Sydney Airport (SYD), Telstra Corporation (TLS), Sonic Healthcare (SHC) and Westfield Corporation (WFD) as key stocks for conservative income investors in 2016. So far, so good. None of these stocks are cheap, but each warrants a spot in income portfolios.

Investors with higher risk tolerance can employ two other strategies to maximise yield in 2016: buying Australian industrials that benefit from a lower currency; and adding a few mid- and small-cap stocks with reliable, attractive, fully franked yield.

As an aside, my starting point for finding yield is always valuation. It is no good paying “overs” for a stock to access its dividend stream: a 20% capital loss quickly wipes out a few extra points of yield. Never treat stocks like bonds, or yield like a bond coupon rate.

Strategy one: industrials that benefit from a lower currency

I don’t believe that global growth is about to sink as China tumbles, the US slides into recession, and Europe breaks apart from geopolitical tensions. Or that emerging markets will trigger the next global crisis as capital flees the region.

Markets got it wrong on global growth earlier this year. Equities fell too far. If anything, the US economy looks a little stronger than expected and the prevailing view that the US Federal Reserve will take much longer to raise interest rates this year is overly optimistic.

Another two, possibly three, US interest-rate rises this year (a good move in the long run) would take the US dollar higher. At the same time, the Reserve Bank will cut interest rates at least once this year as commodity prices fall further and the housing sector slows.

The result: an Australian dollar trading around US65 cents, possibly less, by year’s end. Granted, our currency has remained stubbornly high as other regions have engaged in currency wars, and predicting the dollar is a mug’s game. But our currency has to fall further for Australia’s long, grinding economic recovery to go up a gear.

A lower Australian dollar is good news for exporters and companies with offshore earnings. Their profits worth more when translated into our currency. Westfield Corporation, with its US and United Kingdom shopping centres, is a good example. Computershare (CPU), Brambles (BXB), James Hardie Industries (JHX), Cochlear (COH), Resmed (RMD) and Macquarie Group (MQG) are others.

Macquarie Group appeals at current prices. The investment bank and asset manager earns about two thirds of its revenue outside Australia. At $64.26, it offers a forecast grossed-up dividend of 7.2% after accounting for partial franking, consensus estimates show.

Macquarie has a forecast Price Earnings (PE) multiple of about 11 times 2016-17 earnings. That looks reasonable for a well-performing global investment bank that is building a larger asset-management business and relying less on more volatile earnings from investment banking.

The dividend appears stable. Macquarie announced a solid trading update for the December 2015 quarter, despite global market volatility. An expected dividend payout ratio below 70% suggests Macquarie has scope to pay higher dividends if needed. Macquarie ticks several boxes: attractive yield and potential for modest capital growth in 2016; operational momentum and several tailwinds, such as a lower Australian dollar, that will support earnings-per-share and thus dividend-per-share growth in coming years.

Do not compare Macquarie with the big banks: it’s a different beast and potentially more volatile than a Commonwealth Bank or Westpac Banking Corporation. But its valuation and forecast yield make it worthy for income investors prepared to take higher risk.

Chart 1: Macquarie Group

Source: Yahoo!7 Finance

Strategy two: Small- and mid-caps

Conservative investors should mostly stick to ASX 200 companies for yield. Those with genuine “economic moats” or competitive advantages, such as Sydney Airport, provide defensive earnings and distribution. But too many of them are fully valued.

Also, I never understand why small-cap companies with high return on equity pay out so much of their earnings in dividends. They should be reinvesting for future growth. Why give a dollar to a shareholder through a dividend if that dollar can be compounded at 15% – a return hard to find elsewhere – and turned into something much bigger.

Caveats aside, looking further down the market for yield has merit, provided investors stick to higher-quality companies, focus on the reliability of future dividends, and are not blinded by headline trailing yields. A high yield is often a signal of other problems. Some mid-caps appeal.

Perpetual (PPT) was nominated as one of three top wealth-management stocks for this report in November 2015 (along with Henderson Group (HGG) and Platinum Asset Management (PTM)). It has fallen from $45 then to $41 amid the broader sharemarket sell-off, but has improving medium-term prospects as it expands in private wealth management and as its international equities products attract more funds.

Chart 2: Perpetual

Source: Yahoo!7 Finance

Perpetual has an expected grossed-up dividend yield of 8.8% after accounting for full franking, consensus analyst estimates show. Four broking firms that research Perpetual have a buy recommendation, 10 have a hold, and one has a sell. A median share-price target of $44.34 suggests Perpetual is undervalued at the current price.

Equity market volatility could affect Perpetual’s short-term performance, but it has increased dividends per share for the past four financial years, looks cheaper than several of its wealth-management peers, and has reasonable prospects for stronger medium-term growth.

IOOF Holdings (IFL) also appeals on income and valuation grounds. At $8.35, the mid-cap wealth manager is expected to deliver a grossed-up yield of about 9% after franking, consensus estimates show. A forecast PE of 12 times in FY17 is not excessive.

Eight of 13 broking firms that cover IOOF have a buy recommendation, four have a hold, and one has a sell. A median share-price target of $9 suggests scope for reasonable total shareholder return given the expected 8.8 % grossed-up yield.

Chart 3: IOOF Holdings

Source: Yahoo!7 Finance

IOOF lifted first-half profit in FY16 by 18% to $95.4 million and increased the interim dividend by 14% to 28.5 cents a share, fully franked – a good effort in a volatile equity market. Healthy fund inflows and rising assets under management are offsetting margin pressure from investment platforms that distribute its products. IOOF’s low debt and strong balance sheet provide scope to buy weakened competitors and grow by acquisition, and add to its dividend reliability. But as with Macquarie and Perpetual, do not buy IOOF if you believe global equity markets will tank this year.

If, like me, you believe equity markets over-reacted in early 2016 to signs of slowing global growth, pay closer attention to the wealth managers for their dividends. The sell-off has provided an opportunity to buy some of them below fair value and capitalise on attractive yields that should be reasonably reliable given tailwinds in the sector.

Among micro-cap stocks, Retail Food Group (RFG) and Rural Funds Group (RFF) appeal. Retail Food, a pizza, coffee and snacks franchise provider, has almost halved from its 52-week high. Previously a market darling, it is expected to yield around 6% in FY16 and trades on a forecast PE about 10 times. Retail Food is starting to look cheap given its growth prospects and potential to expand offshore.

Chart 4: Retail Food Group

Source: Yahoo!7 Finance

Farm investor Rural Funds Group has a trailing yield of 6.1% at the current price. I like its strategy to buy, consolidate and rent farms – a model that has worked well in the United States and is nicely timed given strong demand for Australian agriculture in Asia. Rural Funds Group has had a good run, but has scope for higher distributions in coming years.

Chart 5: Rural Funds Group

Source: Yahoo!7 Finance

Retail Food Group and the thinly traded Rural Funds Group suit experienced long-term investors who are comfortable with small-cap stocks.

Tony Featherstone is a former managing editor of BRW and Shares magazines. This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at March 2, 2015.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.