Although the ever-popular equity income fund sector has underperformed in the recent bull market, income-yielding stocks are again looking attractive after a summer of extreme market volatility.

Larger companies in the FTSE 100 are now looking cheap on a price-to-earnings basis, and have the additional attraction of an annual dividend income that can match or exceed some high street interest rates.

Many also promise decent dividend cover, meaning the company's earnings can support consistent payments in future. Generally speaking, a ratio of 2 or higher is considered safe, but anything below 1.5 is more risky.

Certainly, figures out this week from M&G Investments show there is a strong backdrop for dividend growth. Overall dividends paid by UK companies grew by 7 per cent in the first half of the year, substantially above inflation, with 97 per cent of FTSE 100 companies that reported in August increasing their dividend payments.

No company in the FTSE 100 cut dividend payments in the first half of 2007, with 93 of the 96 reporting in that period raising payments. More than half of these increased dividends by 10 per cent or more.

The companies with the biggest dividend increases in the period included International Power, up 76 per cent, Carnival Cruises, up 40 per cent, Man Group, up 40 per cent, and Persimmon, up 34 per cent.

Ironically, these have been some of the worst-hit stocks during the recent correction - with Man Group, for example, leading the FTSE 100 fallers. Royal Bank of Scotland, another financial stock tarred with exposure to the debt markets, increased its interim dividend to 10.1p per share up from 8.4p per share.

Telecoms companies have also made their dividends more attractive to income-hunting investors. BT's final dividend for this year is up 27 per cent on its 2005-2006 figure, while Vodafone's final dividend represents an 11.4 per cent increase on the previous year.

An expected dividend from Verizon Wireless, 45 per cent owned by Vodafone, should also further boost Vodafone's ability to pay more money out to investors, says M&G.

Richard Hughes, manager of the M&G Extra Income Fund, says: "I predict solid [dividend] growth of at least 7 per cent for 2007. This is a real benefit to investors as bouts of market volatility continue."

Gary Potter, fund manager at Thames River Capital, says investors today have a better opportunity to invest in income-generating vehicles than a few months ago, at generally lower prices.

Potter, co-head of Thames River's long-only multimanager business, says fund managers have identified interesting opportunities in a number of sectors. These include the higher yielding financials stocks, as well as genuine growth businesses, where valuations have been adversely affected in the short term by concerns over the economic outlook - for example, in support services, outsourcing and recruitment.

Bill Mott, fund manager for the PSigma Income Fund, stresses that most of the decent yields are still in the financials sector, including the major banks, which is also where most of the better dividend cover is found.

But these are also the stocks with most potential exposure to the subprime crisis and knock-on effects from the debt liquidity problems. Outside banking stocks, Mott backs recruitment companies to do well - Michael Page, in particular.

He points out that some construction companies are offering decent yields, too, in spite of being among the worst hit by recent volatility because of their proximity to the housing market.

Carillion, for example, this week proposed an interim dividend of 3.5p, a 13 per cent rise on the 3.1p paid out last year.

Mott has therefore been buying into income-yielding stocks for the past few weeks, on the basis that this is a fantastic opportunity to buy income at "rock bottom" prices.

Utilities are also key to a defensive portfolio, says Justin Urquhart Stewart, of wealth manager Seven Investment Management, who is looking to the electrical and water sectors. "With consumer spending set to slow considerably over the next year, avoid areas exposed to this and buy into these defensive income stocks," he advises. "You need to look for excellent streams of income, which utilities have always had."

Urquhart Stewart points to United Utilities, which is offering the best yield of all companies in the FTSE 100, as well as Seven Trent. He also says that non-life insurers such as Hiscox are looking attractive on an income basis.

Alternatively, investors can gain exposure to these income holdings through one of the many funds available. Equity income funds made up around 12 per cent of funds under management - at almost £54bn - in July, according to the Investment Management Association, which was second only to the All-Companies sector.

These funds have traditionally been the bedrock of many private investors' portfolios, but many income funds have underperformed over the past year as equity growth funds outpaced them during the bull run in the stock market.

Even so, Dan Kemp, senior analyst at Williams de Broe, says these funds should remain the long-term focus of an investor's portfolio as they will outperform over time. However, he does warn that equity income funds have a typically high exposure to financial stocks, where there is still a short-term risk.

"Financial stocks aren't out of the woods yet so we'd expect to see a short-term dip in these funds, and there to be a better buying opportunity afterwards," he says.

Kemp recommends the Temple Bar investment trust in the closed- ended sector, which is offering a 4 per cent yield at a decent discount to net asset value, and the Artemis income fund in the open-ended arena, which yields 3.6 per cent. He describes both as having a good mix of growth and income strategies.

But if an equity income fund seems too conservative an investment choice, there are some more esoteric ways to invest.

For example, there are now two Barclays iShares - exchange traded funds - that track the performance of a selection of UK and European high-yielding stocks.