5.5% yield! Should I buy this FTSE 250 dividend growth stock for 2023?

I think buying dividend stocks can be the best way to get solid returns in the new year. So I searched FTSE 100 and FTSE 250 for the best income stocks to buy.

Office space and retail property owners Hammerson (LSE:HMSO) is one of the top dividend stocks on the radar right now. Should I buy for a big forward dividend yield? Or do the risks facing businesses in 2023 make it too risky for investors?

Physical retail slumps

Physical retail suffers another blow in 2022. In fact, there are 50 store closings. daily last year, according to the Retail Research Center.

This is up almost 50% on 2021 levels and the highest level in five years. The agency said rationalization rather than corporate failure was the main driver of the closures”as retailers continue to reduce their cost base at a pace“.

It warns that this trend will also continue in 2023, although it adds “some big hitters“might as well go to the wall.

Dividend growth

This is a big problem for retail property owners like Hammerson. Indeed, City analysts think earnings here will fall by 10% next year.

But at the same time, the same broker expects the owner of the shopping center to pay dividends in the short term. The payout of 0.4p per share in 2021 will rise to 0.7p for last year before rising to 1.3p this year.

Consequently, Hammerson carries a dividend yield of 5.5% for 2023. This is higher than the forward average of 3.3% for FTSE 250 stocks.

Debt worries

But how realistic are the current dividend forecasts? Yes, the poor dividend coverage casts doubt on the strength of the 2023 projection. It is only 1.4 times for 2023, lower than the minimum safety of 2 times.

In addition, Hammerson plans to dispose of another £300m of assets by the end of next year. That could give it the financial muscle to pay the big dividends predicted by city analysts.

However, there is no guarantee that it will achieve balance-sheet sales in that line. The tough economic climate could make it even more difficult for Hammerson to hive off assets, too.

This is mainly due to the large amount of debt the business still has to pay off. Net debt was at £1.7 billion in June.

Verdict

The good news is that running on Hammerson’s retail property”consistently outperforming the national index“, he said in November. In fact, the number of visitors in the third quarter in the UK and Ireland is about 90% of the level of 2019. If this continues, the earnings may surprise rise.

But that’s not a risk I’m willing to take. I’m also worried about Hammerson’s long-term prospects as e-commerce growth erodes footfall in physical retail destinations.

On balance, I think there are better FTSE 250 dividend stocks to buy for 2023 and beyond.