Trying to make a positive return from the stock market in 2023 could be a difficult task. My plan is to search for UK dividend stocks as the global economy likely struggles.
Soaring inflation and more central bank rate hikes will likely remain big threats to growth next year. Lingering consequences of the Covid-19 pandemic (especially in Asia) and the war in Ukraine are other dangers to the world economy.
In this landscape, the scope for solid profits (and thus share price) growth could be severely limited. So I’ll be looking to build decent returns by buying shares that offer up decent dividends.
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A dividend stock on my radar
Begbies Traynor Group (LSE: BEG) is one dividend-paying UK share I’d buy with cash to invest in this tough environment.
The insolvency practitioner doesn’t offer the biggest dividend yields out there. For the financial years to April 2023 and 2024, these sit at 2.8% and 3% respectively.
But the rate of recent dividend growth still makes it a top income stock to buy. Thanks to its exceptional cash flows and strong earnings growth, shareholder payouts have risen at a compound annual growth rate of around 10% during the past five years.
“A good start”
The number of corporate insolvencies in Britain leapt 40% in the third quarter, according to official data. And it’s led to a pick-up in trading at Begbies Traynor.
The business had made “a good start” to the financial year beginning in May, it announced at late September’s AGM. In particular, it said it had witnessed “an increasing number of larger, mid-market insolvency and restructuring cases emerging” due to “the increased activity in administrations and our expanded London office and offshore practice”.
The Bank of England recently forecast that the UK will remain in recession until mid-2024. In this environment, Begbies Traynor’s services will likely remain in high demand.
In safe hands
The company’s share price has failed to ignite in 2022 despite improving trading conditions. This could remain the case next year too.
Just as “a rising tide lifts all boats,” Begbies Traynor could be weighed down by broader weakness on stock markets. But I’d still buy the business for its dividends.
Unlike many UK shares, I think this dividend stock looks in great shape to at least meet analysts’ forecasts. Predicted shareholder payouts are covered 2.6 times by expected earnings. Any figure above 2 times is said to provide a wide margin of safety for shareholders.
The AIM business also has its strong balance sheet to help it pay big dividends if earnings disappoint. It has no debt on the books and had net cash of £4.7m as of April.
I’d also buy the company for its acquisition-led growth strategy. Such programmes can erode shareholder value if assets fail to deliver expected results. But Begbies Traynor has a terrific track record on this front. And I expect earnings (and thus dividends) here to keep growing over the long term as expansion continues.
