10%+ yields! Is this dividend stock a brilliant buy or an ISA investment trap?

Royston Wild looks at a 10% dividend yield and asks whether it’s the key to retirement riches after all.

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There’s never been a better time to be a dividend investor than today. Global payouts currently sit at record highs and there’s a  galaxy of top income stocks for UK investors in particular to load up on right now.

That said, I’m not tempted for even a second to splash the cash on McColl’s Retail Group (LSE: MCLS) despite some truly cracking earnings and dividend projections. And here’s why.

A 16% profits rise is forecasted for the fiscal year to November 2020, one which supports predictions the convenience store operator will start lifting dividends again. A 4.25p per share reward is anticipated, up from 4p in recent years, and one which yields a monster 10.7%.

I’m afraid these City estimates are looking just a little toppy, though. But don’t just take my word for it. The full-year results unveiled by McColl’s earlier on Tuesday reveal just how frothy these numbers look as trading worsens moving into the new financial year.

Like-for-like sales were flat in the fiscal period just passed, an improvement from the prior year when corresponding revenues dropped 1.4%, but hardly a signal of an impending turnaround.

Indeed, the retail play said full-year adjusted EBITDA would fall short of expectations due to “softer market conditions in the second half” because of lower consumer confidence and the impact of bad weather.

The high probability of current forecasts being blown off course mean not even a forward P/E ratio of 5.5 times — a reading which sits well inside the widely-regarded bargain benchmark of 10 times and below — is enough to encourage me to invest.

McColl’s continues to see its shares haemorrhage value (down 28% so far in 2019 and around 80% in the past three years), and there’s no signs the fallen retail play is about to turn things around any time soon. Expect more heavy stock price weakness in 2020, I say.

I’d buy this near-9% yield instead!

Those investors on the hunt for monster dividends (who isn’t?) would be much better off using their hard-earned cash to buy shares in PayPoint (LSE: PAY).

Sure, the tech play doesn’t offer the same sort of value as McColl’s, but a dividend yield of 8.6% for the current fiscal year (to March 2020) clearly isn’t to be sniffed at. Nor is a corresponding P/E multiple of 14.9 times.

Indeed, I’d consider this to be great value given the encouraging rate at which its Paypoint One retail terminals are being adopted by convenience stores the length and breadth of the country.

The number of sites operating these terminals, which do everything from stock management and parcel transit to taking payments from customers, surged by 2,207 in the six months to September to stand at 15,088.

So impressive has the uptake been that its full-year rollout target has been turbocharged to 16,500, from 15,800 previously, and therefore there’s plenty of reason to expect service revenues (which rose 32% in the half year to September) to keep on ballooning.

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 owns shares of PayPoint. The Motley Fool UK has recommended McColl's Retail. 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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