Despite the cost of living crisis, high interest rates and ongoing uncertainty, 2023 looks set to be the ‘year of the dividends’ for investors and in that regard the UK remains one of the best-valued markets around.
A recent study of markets by Evelyn Partners said the firm was expecting investors to seek securities yielding an income, backed by reliable cash flows. We have actually been favouring that approach for many years now as we prefer to build balanced investment strategies using high levels of diversity to help balance risk but where income from the overall pot remains a key feature. This can be enjoyed by the investor, reinvested to allow further purchases or gifted if that is appropriate.
The UK emerges as one of the better stock markets across the world for dividend payments, with UK equities predicted to pay a dividend yield of 4.3% this year – one of, if not the highest out of the major stock markets.
Meanwhile, the US has the lowest expected yielding market at 1.7%.
There are no guarantees, but seeking a good dividend income will help to compensate investors even if stock values do not improve or the markets remain quite flat for a period.
More companies are paying attractive dividends, with ‘defensive’ areas of the market such as consumer staples and utilities offering decent dividends, whereas other sectors such as information technology and communications services continue to be much lower.
No investment is without risk and if this strategy is something you are considering in terms of where to place money, please do seek professional advice first.
It should not be forgotten that a high dividend yield can sometimes indicate the stock price has fallen significantly, which to some may indicate a riskier investment. However, that is not necessarily the case and quite often a price fall may be the result of another market sector becoming more trendy and popular and sometimes because lofty market expectations are not quite achieved.
It is also important to consider the company’s financial health and growth potential, as well as the overall market conditions.
Naturally, before considering longer-term market based investments, we always encourage investors to set aside enough rainy day funds to cover the cost of possible emergencies and any known expenditure in the next few years, if that cannot be met by income.