2 dividend stocks yielding 10% I’d buy for an ISA today

With yields of 10%, these income stocks could revolutionise the prospects of your portfolio, says Rupert Hargreaves.

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If you are looking for a dividend stock to add to your portfolio today, then I highly recommend checking out specialist retailer Halfords (LSE: HFD).

Shares in this company have taken a hammering over the past 12 months as investors have jumped ship. The retail sector is one of the most hated on the market right now, and Halfords is no exception.

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However, it seems as if the business is coping quite well in the current environment. According to a trading update for the 20 weeks to August 16, total group sales declined by 3.9% with Autocenter sales rising 2.4% and general retail sales falling 4.8%. 

Management blames poor summer weather and weaker consumer confidence for this sales performance. They believe the uncertain economic environment is also hurting demand for big-ticket items.

But while sales are coming under pressure, costs are falling. As a result, today’s trading update notes that the group’s gross profit margin across the business has improved year-on-year. Online sales are also outperforming the rest of the business. Total online sales grew 8.4% year-on-year for the 20 weeks to August 16.

Margin of safety

Considering the above, it doesn’t seem as if the outlook for Halfords is as bleak as the market is suggesting. 

Therefore, I think now could be an excellent time to buy the stock. After recent declines, it is trading at a forward P/E of just 7.5 and supports a dividend yield of 10.2%. In my opinion, these numbers give investors buying today a healthy margin of safety.

Deep value

Another dividend stock that currently offers a dividend yield of more than 10% is real estate investment trust Hammerson (LSE: HMSO)

At the time of writing, shares in this business look severely undervalued. The stock is selling at a forward P/E of just 8.5 and a price-to-tangible-book-value of only 0.4. This implies that the value of the company’s property is worth 67% more than the current market capitalisation. 

On top of this bargain valuation shares in Hammerson support a dividend yield of 11.3%.

Retail market

Hammerson is selling at such a cheap valuation because the market is concerned about the value of its properties. Other commercial property-focused investment trusts have recently announced big write-downs on the value of their property portfolios, and there’s speculation Hammerson could be next.

I think it would be naive to suggest that the company is immune to asset write-downs. Nevertheless, I think it is unlikely its properties are worth 60% less than the current book value.

This implies that at the time of writing, there is a wide margin of safety in the stock. Even if the value of its properties are marked down by 30% (which I think is unlikely) investors buying today would still be acquiring shares in the business at below book value. Then there’s the 11.3% dividend yield to consider.

That’s why I think Hammerson could be an excellent investment at current levels.

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Rupert Hargreaves owns no share 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.

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 considered, so you should consider taking independent financial advice.

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