Should ISA investors buy this unloved FTSE 100 dividend stock and its 6.6% yield?

Searching for cheap FTSE 100 shares to load up on? Royston Wild runs the rule over a fallen blue-chip with big dividend yields.

| 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.

Marks & Spencer (LSE: MKS) may be the victim of the latest FTSE 100 reshuffle but, for the moment, it’s still clinging on by its fingernails. That’ll change in the next few weeks when the fashion giant falls into the FTSE 250, a chastening experience for a business that’s been a stalwart of Britain’s premier share index since its inception in 1984.

Did I say fashion giant? ‘Relic’ is perhaps more of an apt description for this once-loved shopping institution. A 34% share price slump since the start of May alone has prompted the retailer’s demotion and I’m tipping it to keep sliding as consumers continue giving its clothing lines the cold shoulder.

Triple trouble

It’s not just that Marks & Spencer’s troubles are confined to claims its clothing is over-priced and off-trend. Though, of course, this continues to cause the company huge stress — latest financials showed like-for-like sales at its clothing and homewares division drop 1.6% in the 12 months to March.

It’s also not just that the company is struggling amid broader weakness in the UK retail sector, a problem that’s getting worse amid ongoing Brexit uncertainty. Most recent Office for National Statistics data disappointed and showed retail sales fall 0.2% in August.

It’s that the company’s management, after years of trying and countless aborted attempts, still hasn’t got a clue as to how to bring its flagging fashion arm back to life. Jill McDonald was poached from Halfords in 2017 to oversee a revolution, but brought very little to the party before she was dismissed in July.

Asleep at the wheel?

Even when M&S happened upon a popular product line, it wasn’t able to capitalise because of poor stock control. In the last fiscal year, the Footsie firm noted “encouraging progress in quarter three was constrained by weak availability in quarter four as we sold out of fast-selling lines and experienced supply issues.” And these issues will take some time to solve as well.

Chief executive Steve Rowe has vowed to take day-to-day control of the division which he headed before taking the top post three-and-a-half years ago. But those hoping it will prove to be a much-needed silver bullet for this flagging business are likely to be disappointed. He failed to institute significant change in his first stint at the unit, and market conditions have worsened since then as competition has increased and consumer spending has shrunk.

Meanwhile, the line of people leaving M&S continues to grow, the latest of which, chief financial officer Humphrey Singer, announced his exit on Friday. Speculation is now growing as to whether Rowe could be next to head for the exit.

Now Marks & Spencer’s cheap — it currently trades on a forward P/E ratio below 10 times — while it boasts a monster 6.6% corresponding dividend yield too. This is a reflection of the company’s high-risk profile, however, and the probability that earnings will keep skidding beyond the anticipated 17% drop City analysts have marked for fiscal 2020. I, for one, plan to keep avoiding the high street horror like the plague.

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

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 »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »