One stock I won’t buy despite its HUGE dividend yield, and one I would buy

On the hunt for big dividend yields? Royston Wild looks at two income stocks and considers which you should buy and which you should bin.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On paper, Workspace Group (LSE: UKP) is a share that has a lot to offer income investors. The recent stock market crash leaves it with a big forward dividend yield of 4.5%. It’s also a UK stock that has resisted the temptation of many to immediately pull shareholder payouts.

I worry that the business will end up disappointing on the income front, however. With the UK economy sinking it’s likely that demand for its office, industrial, and workshop spaces will sink steadily. City predictions of additional earnings and dividend growth this year could end up falling very flat.

The threat was underlined in Workspace Group’s latest financials last week. In them, the FTSE 250 firm declared that half of rents due at the end of March had been unpaid. It added that “customer discussions on rent deferrals [are] continuing on a case by case basis.” It’s a scenario I fear the business will have to get used to.

Despite the recent share price crash Workspace Group still looks quite pricey. A price-to-earnings (P/E) ratio of 18.2 times for 2020 is below its historic norms, sure. Though with a prolonged and painful coronavirus crisis threatening to materialise, and the spectre of a potentially painful Brexit also floating in the background, it’s a reading that’s still too high to tempt me to invest.

A better big dividend yield

I’d be much happier to ignore Workspace Group and put my hard-earned cash into Highland Gold Mining Ltd (LSE: HGM) instead. It trades on a P/E ratio of just 7.4 times for 2020 and carries a huge dividend yield of 6.5%, too.

The economic impact of the coronavirus continues to beat all expectations. Latest US non-farm payrolls data showed an extra 6.6m file for unemployment benefits last week. This beat the broker consensus by more than one-and-a-half-million and has taken the country’s unemployment rate to 14%.

This is higher than the rate reported during the Great Recession of the 1930s. These are scary times for the global economy and central banks are likely to keep on printing money like there’s no tomorrow. The Federal Reserve today announced news of even more stimulus following those terrible jobless numbers.

Fear factor

There’s clearly plenty of scope for gold prices, which have moved back above the $1,650 per ounce marker last week, to keep rising as macroeconomic and inflationary fears rise, then. The International Monetary Fund on Friday announced that it expects a whopping 170 countries to experience negative per capita income growth this year. Things could get even worse should the pandemic persist into the summer and/or reemerge during the colder season of late 2020.

It pays to continue having some exposure to safe havens like gold, then. And by buying into the likes of Highland Gold Mining you get the twin benefit of being able to ride a rising gold price and getting hold of some huge dividend yields, too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »