Global stock markets remain under extreme pressure as geopolitical tension in the Middle East grows. Investor confidence is already fragile as the world economy splutters, and the dividends that many UK shares deliver next year could massively disappoint.
However, I’m not planning to stop buying British income stocks for my portfolio. After all, there are many top shares that should still produce solid returns next year despite current macroeconomic and geopolitical dangers.
Begbies Traynor (LSE:BEG) is one such company I’m considering buying for my portfolio for passive income in 2024.
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A counter-cyclical star
This impressive insolvency specialist has grown annual dividends for the past six financial years. And as conditions unfortunately get tougher for UK businesses I’m expecting shareholder rewards to keep climbing as profits rise.
Latest figures from the Insolvency Service this week made for grim reading. It showed the number of corporate insolvencies in England and Wales jump 10% year on year during the third quarter, to 6,208. On the plus side, this was down from Q2’s 14-year highs, but only just (down 2%).
With Britain’s economy decelerating, and the cost-of-living crisis enduring as homeowners switch to more expensive mortgage products, the number of companies in significant financial distress looks set to remain at elevated levels.
Another strong update coming?
Begbies Traynor — which generates 80% of revenues from counter-cyclical and defensive activities — is seeing business grow strongly in this climate. Revenues rose 11% during the 12 months to April, while adjusted pre-tax profit increased 16% year on year.
The company finished fiscal 2023 with a strong insolvency order book, up 19% year on year. And in September, it said “we have made a good start to our new financial year with encouraging activity levels across the group“.
Begbies beat market expectations with last year’s results, and I think signs of more forecast-beating trading could be coming when the firm updates the market in December.
A long-term buy
I wouldn’t buy the shares just to build wealth in the current tough climate though. I expect it to deliver excellent long-term returns as its acquisition-based growth strategy continues.
Revenues have doubled during the five years to April as the group has grown, while adjusted profit before tax has tripled. And in September, the company added recovery and insolvency practice Jones Giles & Clay to improve its market position in Wales.
A strong balance sheet means Begbies has scope to continue making acquisitions and growing the annual dividend. Its already impressive free cash flow improved to £14.1m last year, meaning it ended the year with net cash of £3m.
City analysts agree with my expectations for further dividend increases. And so the company carries healthy dividend yields of 3.4% and 3.6% for the next two years.
Acquisitions can carry risks, such as unexpected costs and lower-than-forecast sales. But Begbies’ strong track record partially soothes any fears I have. I’ll be looking to add the company to my portfolio when I next have spare cash to invest.
