UK equities could “fit the bill” for investors as 2023 is expected to favour dividend-yielding stocks, according to Evelyn Partners.

Evelyn Partners chief investment strategist, Daniel Casali, noted that due to the volatility in financial markets, the firm expected investors to remain defensive in 2023 and seek income-yielding securities backed by reliable cashflows.

He stated that the sell-off had led to the widest dispersion in global stocks for 13 years, excluding the pandemic.

Therefore, dividend yields are high and more companies are paying attractive yields, according to Casali, and assuming dividends are not cut, this could be a time to “play the field for yield and lock in the income they provide”.

“Defensive areas of the equity market (e.g. consumer staples and utilities) and materials also score well on this front,” Casali said.

“This is in stark contrast to the low-yielding information technology, consumer discretionary and communications services sectors — which all pay dividend yields of less than 1.6 per cent.

“There is an opportunity cost for sticking with such low-yielding stocks when short-term interest rates have risen and offer a higher return.”

Evelyn Partners had observed similarities in stock markets across different geographies, with UK equities expected to pay a dividend yield 4.3 per cent, the highest out of the major developed stock markets.

In contrast, the US has the lowest expected yielding market at 1.7 per cent.

“Throughout 2023 we expect money to continue to flow into cashflow-backed income yielding assets, such as UK large-caps,” Casali added.

“Once the US Federal Reserve stops raising interest rates, possibly by the summer of 2023, it may provide a chance to acquire government bonds where yields are up from a year ago and economic growth is slowing.

“A Fed pause may also be a catalyst for Asian (ex-Japan) stocks should it weaken the US dollar, which would help encourage capital to flow back to the region.

“An improving situation in China, driven by the end of its zero-Covid policy, is another reason why Asian stocks could outperform global markets in 2023.”

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