Bearish on the UK economy? These small-cap dividend stocks should see you through

With members of the government resigning left, right and centre, quite what happens next with regard to Brexit is anyone’s guess. Personally, I’m not going to dwell on it for long.

That said, a disinclination to follow political events too closely should not mean turning a blind eye to your portfolio. Indeed, with already-wobbly consumer confidence and interest rates likely to rise at some point (although perhaps not just yet), it’s never a bad idea to consider how you might position your holdings in the event of the UK economy going through a rough patch.

Here are two counter-cyclical, dividend-paying stocks that might appeal.

Market leader

As a holder of stock in small-cap insolvency specialist Begbies Traynor (LSE: BEG), today’s final results made for fairly pleasant reading.

Revenue rose a little over 5% to £52.4m in the year to the end of April with adjusted pre-tax profit rising 14% to £5.6m.

Although levels of insolvency were “broadly in line” with that experienced in 2017/18, the company reported that it had managed to increase its share of the market, helping to maintain its position as “the largest UK corporate appointment taker by volume“. That’s an enviable position to be in if the economy does end up struggling over the medium-term. 

Elsewhere, a 9% rise in the total dividend (giving a yield of 3.5%) should be welcomed by those investing for income. The fact that Begbies’ net debt reduced from £10.3m to £7.5m by the end of the reporting period also suggests that this hike — the first since 2011 — won’t be the last.

So why is the stock down over 3% today? While I would be staggered if any holders were seriously disappointed by these results, such a reaction does suggest that the company was already fairly fully valued (at 18 times forecast earnings), at least for now. A fairly reserved outlook on trading may have also contributed to the slight dip.

Nevertheless, as a hedge against the UK plc, I maintain my positive stance on the stock and will continue to hold.

Big riser

Of course, Begbies Traynor isn’t the only stock worth considering for troubled times. Batley-based home-collected credit lender Morses Club (LSE: MCL) is a company I’ve liked for some time. Based on recent share price performance, it seems I’m not alone.

Since last August (and no doubt supported by the implosion at large-cap rival Provident Financial), the company has increased almost 55% in value. If last month’s pre-AGM update is anything to go by, I think there will be more to come.

Trading over the first four months of its financial year (beginning 25 February) has been robust with the company’s net loan book “well ahead of last year” and impairments being around the level expected.  Although the threat of increased regulation will always linger around this sort of business, Morses also appeared receptive to the outcome of the Financial Conduct Authority’s recent high-cost credit review and the proposals that came from it.

Like Begbies, the small-cap is an attractive option for those looking to receive income from their investments during difficult times. A yield of 4.4% already looks great, but this is expected to rise to an even more satisfying 5.1% in 2019/20 if earnings expectations are met.  

Trading at 13 times forecast earnings, I still think Morses is worth snapping up.