This cheap FTSE 250 share yields 6.5%! Should you buy it for your ISA today?

Looking for big dividend shares to add to your Stocks & Shares ISA? Royston Wild looks at one that has been grabbing the headlines in recent days.

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After adding Ashtead Group to my Stocks and Shares ISA in September I’m thinking of jumping into the market again and filling my investment portfolio with some more dirt-cheap dividend shares.

N Brown Group (LSE: BWNG) is one stock that caught my attention following a positive reception for its latest financials released last week. At current prices it changes hands on a forward price-to-earnings ratio of 4.7 times – below the widely accepted bargain-terrain mark of 10 times and below – while it also boasting a dividend yield of 6.5%.

In that latest statement, N Brown, a retailer specialising in the ‘mature’ and ‘plus-size’ clothing segments through brands like Jacamo and JD Williams, announced that it had swung back into profit in the six months to August (to £18.8m from a pre-tax loss of £27.1m a year earlier). This was attributed to lower exceptional costs like store closure costs and tax bills, and led many to believe that it could finally be turning the corner.

Sales still slipping

In my opinion, however, there wasn’t enough in that release to justify the share price spike that we saw. It may have avoided putting out the shocking trading statement that I had feared, though there remained enough to discourage me from investing.

To begin with, N Brown saw product revenues drop 9.3% in the first-half period, a result which the firm said reflected items like the run-off of its legacy business, its decision to refocus away from the US, and its decision to shut down its store network in favour of an online-only model last year.

It would be dangerous to take this statement at face value, however. N Brown continues to toil in an environment of intense pressure across the UK retail sector and even stripping out the impact of store closures and its North American operations, product revenues still slipped 6.2% year on year.

Struggles set to last?

The FTSE 250 firm’s chief executive, Steve Johnson, commented, “the retail environment remains heavily promotional” and it’s likely to remain so amid intense competition in the clothing arena and signs that consumers are tightening their wallets even more.

The latest data from the British Retail Consortium spelled out the extent of the problem for the country’s shops – apparently total retail sales dropped 1.3% year on year last month, making it the worst September since records began in 1995.

And the need to keep discounting threatens to continue crushing N Brown’s margins, too. The company announced also last week that product gross margins sank almost two whole percentage points in the first fiscal half to (51.5%).

The third thing to reinforce my concern for N Brown is news of another spike in its already considerable debt pile. Net debt boomed another 14.5% in the six months to £481.6m and this raises the possibility, at least in my mind, that another painful dividend cut could be in the offing, putting that 6%+ dividend yield in jeopardy.

All things considered, I think the retail giant carries far too much risk right now, even if its decision to move to internet-only commerce makes sense in the long run. This is why I’m not adding it to my own ISA just yet.

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 owns shares of Ashtead Group. 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.

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