A severe economic downturn in 2023 could deliver a hammer-blow to company profits. In this landscape, there’s a chance dividends from many FTSE 250 stocks may fall significantly short of estimates.
The Bank of England has predicted the longest recession since records began. And it’s expecting UK GDP to continue contracting until the middle of 2024.
This is a particular risk to the FTSE 250, an index which is packed with companies that are dependent on a strong British economy.
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But this doesn’t mean things are looking grim for the whole of London’s second-tier index. Here are three top stocks I expect to deliver big dividends next year.
NextEnergy Solar Fund (8.1% dividend yield)
Energy producers like NextEnergy Solar Fund can be among the most dependable out there. After all, electricity demand remains generally constant regardless of broader economic conditions.
NextEnergy is invested in around 100 solar farms spanning the UK and Italy. I like this geographical diversification as it nullifies the impact that adverse localised weather conditions can have on earnings. In other words it doesn’t have all its eggs in one basket.
Predicted dividends here are also covered well by anticipated earnings. Dividend coverage sits at 2.8 times, comfortably inside the desired target of 2 times and above.
My only concern for NextEnergy would be its huge debt pile. The costs of servicing this could soar as interest rates rise.
Centamin (4.9% dividend yield)
Gold producer Centamin could be the perfect FTSE 250 share to buy for what could be a troubled 2023.
Prices of the safe-haven commodity could fly next year for several reasons. And this could give the company extra fire power with which to pay market-beating dividends.
Rising inflation threatens to push the global economy into recession next year. The war in Ukraine is in danger of dragging into a second year, and Chinese intentions regarding Taiwan continue to spook observers. At the same time, Covid-19 infection rates remain high in parts of Asia.
It’s true that bullion prices (and thus Centamin’s profits) are under threat from rising interest rates. But okay-ish dividend coverage of 1.8 times and a strong balance sheet convince me that it should still meet City forecasts. It had cash of $154m as of September.
Primary Health Properties (5.9% dividend yield)
Real estate investment trust (or REIT) Primary Health Properties is another top stock for uncertain times. As the name suggests, this company owns and operates primary healthcare properties like GP surgeries in the UK and Ireland.
The essential service it provides means rental income is predictable during good times and bad. And what’s more, around 90% of its rents are paid out by government bodies.
Primary Health is committed to expansion through acquisitions. This in turn leaves profits in danger from unexpected costs. But all things considered, I think this is a rock-solid dividend stock to buy for 2023.
