Looking for income? One dividend stock I’d buy for my ISA and one I’d avoid

Both of these shares offer above-average dividends. But which should you load up on and which should you ignore?

| 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.

The growth of e-commerce has been one of the big stories of the new millennium and it’s not done booming just yet. I believe investing in Tritax Big Box REIT (LSE: BBOX) is one terrific way to ride this trend.

A report from We Are Social and Hootsuite shows that the internet’s role as a shopping destination continues to go from strength to strength. The UK e-commerce market swelled 8.5% in value in 2019 to total a whopping $86.5bn, their data shows. This is no wonder, as technological innovations and the accelerated demise of bricks-and-mortar retail encourages more and more shoppers online.

Tritax provides the big box logistics and warehousing spaces that are critical for e-commerce to take place. This integral role in the industry means that City analysts expect it to keep its broad record of annual earnings growth. They are predicting a 2% rise in the bottom line in 2020. And with that come expectations of more dividend growth, creating a massive 4.8% dividend yield.

Despite its high forward price-to-earnings ratio of 20.7 times, I reckon Tritax is fully deserving of this premium rating.

Emissions policy swerves again

I don’t believe that Vertu Motors (LSE: VTU) is a good selection for income hunters, however. That’s even though the car retailer also offers a bulky yield for the current year (to February 2020) of 4.7%.

New car sales in the UK have declined at a shocking rate in recent times. It reflects the Brexit uncertainty that’s causing both private and corporate buyers to splashing the cash on big-ticket items. It’s also a sign of buyer confusion over future emissions standards that are hammering sales of diesel cars in particular.

Government policy concerning the sale of petrol and diesel cars is as clear as mud. Earlier this month the government brought forward previous plans to outlaw new registrations of such vehicles, from 2040 to 2035. But today, transport secretary Grant Shapps said that the date could come in even sooner, in 2032.

Risky business

Pre-tax profits at Vertu fell 7% in the six months to August, latest financials showed. While like-for-like sales of used autos rose 1.6%, corresponding sales of new units plummeted 10.1%. No wonder City analysts expect earnings at the AIM-quoted company to fall yet again this year (a 1% drop is currently forecasted).

The uncertainty over both Brexit and upcoming emissions laws look set to keep consumers spooked for some time, then. Vertu’s low forward P/E ratio of 7.1 times and that bulging dividend yield might make it attractive on paper, but the threat of long-term damage to its business – particularly if the UK chooses to exit the European Union on a no-deal basis later this year, which would deal a massive blow to the car industry – makes this share far too risky right now. I’d avoid it 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 recommended Tritax Big Box REIT and Vertu Motors. 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

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »