One 5% yielder I’d buy today and one I’d avoid

Royston Wild looks at two dividend shares with very different investment outlooks.

| 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.

Bonmarche Holdings (LSE: BON) has provided the market with an end-of-week spook, the share sinking 23% in Friday trade after the release of a frankly shocking market update.

The FTSE 250 retailer said that sales tanked 5.5% during the 13 weeks to December 30, marking a significant decline in customer demand in recent months (by comparison revenues actually rose 0.9% during the 39 weeks to December 30).

In its stores, like-for-like (LFL) revenues dropped 9.7% during the last 13 weeks, it said, while online sales improved 28.5% in the period. Both of these also represented a decline more recently.

Commenting on the results chief executive Helen Connolly said: “The clothing market became more challenging during this quarter, especially on the high street; consequently our store LFL was disappointing.”

And she added: “There remains uncertainty as to how trading conditions will evolve as we enter our final quarterWe do not anticipate material changes in the underlying market conditions, and in this short-term outlook, the weather represents the most significant uncertainty due to its effect on consumer shopping behaviour.”

Downgrades imminent?

The latest batch of UK retail sales data released today has added doubt to Bonmarche’s ability to bounce back, too. Office for National Statistics numbers showed sales volumes dropped 1.5% during December, the biggest month-on-month drop since June 2016. And conditions are likely to remain tough as inflationary pressures crimp consumer spending power.

Square Mile consensus had been predicting earnings to boom 26% in the 12 months ending March 2018, and an additional 20% was forecast in fiscal 2019. However, in the wake of today’s disastrous update these numbers are set for swingeing downgrades, of course. And thus investors should pay little attention to a dirt-cheap paper valuation, Bonmarche carrying a forward P/E ratio of 7.9 times.

I confess that I was previously confident that the clothes giant would be able to overcome current difficulties for the retail sector thanks to its emphasis on the value end of the market. But with conditions having worsened since then, investors should maybe give Bonmarche a wide berth today, even in spite of its monster dividend yields of 7.6% and 7.8% for this year and next.

Gold giant

Unlike Bonmarche I would have no crushing concerns over the gold digger Polymetal International‘s (LSE: POLY) earnings potential right now.

Bullion values hit a four-month peak around $1,340 per ounce earlier this week as a slew of disappointing economic data from across the Atlantic heaped fresh pressure on the US dollar.

There is plenty of reason to expect demand for the safe-haven asset to continue bubbling higher too, as Brexit-related fears continue, the intrigue surrounding the Trump presidency looks likely to persist, and fears of lumpy economic growth and massive debt in China drag on.

And surging production levels are putting Polymetal in great shape to capitalise on this situation. Total gold equivalent output at the Russian business leapt by more than a quarter during Q3, to 470,000 ounces.

Given these factors, the City is expecting earnings at the FTSE 250 firm to jump 16% and 18% in 2018 and 2019 respectively, and thus keep dividends marching higher too. Consequently the gold  colossus sports massive forward yields of 4.9% and 5.8% respectively.

An ultra-low P/E ratio of 10.6 times confirms Polymetal as a dividend great worth checking out today, in my opinion.

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

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »

Investing Articles

How cheap is the 72p Vodafone share price?

The Vodafone share price looks very cheap having fallen to a 72p price tag. But is it really the bargain…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Up 43% in a year and the IAG share price could keep on rising!

One of the FTSE 100’s highest-flying stocks still looks cheap on an earnings basis. Is this a brilliant buy for…

Read more »