The suspension of the next three quarterly dividend payments from BP has suddenly alerted many to the issue of concentration risk, or the high proportion of dividend income that comes from relatively few companies.

The risk is evidenced by the fact that five biggest shares in the FTSE 100 index accounted for 46% of all dividend income from UK plc in 2009.

So by being forced to retract a dividend it had already declared, BP gave the UK stock market a nasty psychological shock and led to a scrabble among equity income funds to find ways to make up for a source of income they had been counting on.

One solution is to invest more widely among mid and smaller cap stocks in the UK market. While the public at large may be facing austerity, following the recent Budget, many companies have already taken action to cut costs and restructure and as a result are now seeing good cash generation and can support their dividends.

Investors are also starting to look abroad for dividend income. The equity income sector may be largely a UK phenomenon, but this does not mean fund managers need to invest solely in the UK for equity income.

Aberdeen Asset Management has launched a Latin America income fund and JP Morgan Asset Management has brought out a global emerging markets income fund, while others are looking at Europe for income, as it becomes a more mature equity market, with more emphasis on dividend payments.

One reason UK investors like equity income funds is that they have generally outperformed equity growth funds over the last 10 to 20 years. A reason for this is that over longer time periods, a high proportion of a share’s total return comes from reinvested income, rather than capital gains.

But it is arguable that by showing a strong preference for dividends, shareholders can distort rational decision-making at companies, which then under-invest in their long-term growth prospects in order to maintain dividends and keep the share price up.

So perhaps the BP dividend cut might lead to a re-appraisal of dividend policies and how much investors rely on dividends.

Certainly, investors should look at the issue of concentration risk in their portfolios and may find investing overseas for income to be an attractive option. And some companies may consider the sustainability of their dividend policies and if it impacts on the longer term.

As the emerging markets grow in importance, it is more likely that we will see investors holding emerging market stocks for income, as well as for capital gains. But one message is clear; equities are volatile assets and unforeseen disasters, such as BP’s inability to cap an oil leak in the Gulf of Mexico, can turn off what seemed a stable income stream for UK investors.