Why I’d sell this FTSE 250 ~12% yielder to buy this FTSE 100 1% yield

It’s FTSE 100 (INDEXFTSE: UKX) vs FTSE 250 (INDEXFTSE: MCX). Which of these shares would you be better off buying today? Royston Wild has an idea.

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If the latest round of retail sales data is anything to go by then NewRiver REIT (LSE: NRR) is a big yielder that should be avoided like the plague.

In another sign of the challenging conditions for British shoppers, numbers from the Office for National Statistics showed total sales in the UK slumping 0.5% month-on-month in May, worsening from the 0.1% reverse recorded in the prior month.

This worsening landscape is reflected in the shocking share price decline at retail and leisure property investment specialist NewRiver since mid-April, and it’s hard to see how conditions will improve any time soon as the Brexit saga rolls on and on and keeps consumers’s wallets and purses firmly sealed.

Stuck in a sales storm

The FTSE 250 firm bemoaned “the significant headwinds facing the UK retail sector” back in May’s full-year update, a release in which it advised that a 6.4% property valuation decline forced EPRA net asset values to fall to 261p per share in the year to March 2019 from 292p in the prior period.

These weren’t the only scary numbers knocking about back then either. Retail occupancy at the firm fell 1.3% year-on-year to 95.2%, while occupancy rates across its pubs fell by 110 basis points to 97.9%. And NewRiver saw footfall across its shopping centres drop 2.4% on a like-for-like basis, a performance that the business pointed out was nonetheless 0.2% better than the industry average.

As well as those aforementioned cyclical issues, NewRiver is being smacked by the hurried migration of consumers moving from bricks-and-mortars stores to conduct their shopping needs online. I concede that its focus on low-cost and convenience retailers makes it less immune to this structural challenge than some other real estate investment trusts, though this clearly still represents a thorn in the company’s side.

All things considered, I’m not moved in the slightest by NewRiver’s low forward P/E ratio of 11.1 times, a valuation I consider a fair reflection of its risky profits outlook. It’s quite possible the retail specialist’s problems will stretch long into the future and for this reason I’m happy to ignore its giant 11.7% corresponding dividend yield too.

A Footsie hero

In fact, had I any holdings here I’d be very happy to sell up and to buy Halma (LSE: HLMA) with those funds instead.

Even though it carries a forward dividend yield of 0.9%, its investment case is far stronger than that of NewRiver, I believe, and that’s why its share price has risen by almost 50% since the turn of 2019.

Time and again I’ve lauded this FTSE 100 stock’s progressive dividend policy which has been running for decades now, and the exceptional profits opportunities afforded by its ambitious acquisition-led growth strategy. So you can imagine my reaction to news that Halma last week bought Australasian fire detection specialist Ampac Group for a cool £74m.

I don’t care about its expensive prospective P/E multiple of 36.4 times. In my opinion Halma’s great growth record and terrific long-term profits outlook means that it’s worth every penny.

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 Halma. 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.

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