U.K. small and mid-cap stocks are a good bet for securing a steady income during a period of economic uncertainty, according to David Taylor, co-manager of Chelverton Asset Management Ltd.'s U.K. Equity Income Fund.

Companies such as GAME Group PLC (GMG.LN), Cineworld Group PLC (CINE.LN), and McBride PLC (MCB.LN) offer attractive levels of dividend income not normally associated with the small and mid-cap sectors, Taylor said late Monday.

"In a very low interest rate environment, people need income," Taylor told Dow Jones Newswires. Traditionally, funds have looked to banks and oil majors to provide this income. But investors have become increasingly wary of over-reliance on a small number of huge companies after BP PLC (BP.LN) suspended its dividend in the wake of the Deepwater Horizon disaster, Taylor said.

Some have looked overseas for healthy dividend yields. However, a U.K. economy without prospects of spectacular growth, but looking increasingly unlikely to sink back into recession, has left a number of small and mid-cap bargains with steady or growing dividends, Taylor said.

Taylor's fund invests only in small and medium-sized U.K. companies with an annual dividend yield of over 3.8%--an approach which rules out investments in the oil and gas, banking, and pharmaceutical sectors. It has a return of 24% for the year to date, compared with 6.7% for the FTSE All Share Index, and a dividend yield of 5.5%.

Some income bargains are available amongst companies that have suffered setbacks such as profit warnings, Taylor said. With dividends less volatile than prices, such stocks offer high yields, at least temporarily. Taylor highlighted household goods manufacturer McBride and building contractor Keller Group PLC (KLR.LN) as high-yielding stocks in this category.

Other small and mid-cap stocks, including Cineworld, Diploma PLC (DPLM.LN), and Braemar Shipping Services PLC (BMS.LN), enjoy steady yields and have a long track record of dividend growth, Taylor said.

He also said there are some stocks investors have gradually fallen out of love with but that continue to pay dividends, pushing yields up. GAME Group, T. Clarke PLC (CTO.LN), and Alumasc Group PLC (ALU.LN), all fall into this group, Taylor said.

Taylor expects a step up in dividend levels at the upcoming year-end earnings season, as small companies cotton on to the appeal of income to investors in an uncertain economic climate. "Advisors are saying to companies, 'put your dividend up'," he said.

-By Tommy Stubbington, Dow Jones Newswires; 44-20-7842-9268; tommy.stubbington@dowjones.com