Forget buy-to-let! Would you be better off buying these 4%+ dividend yields in an ISA?

Royston Wild zeroes in on some big yields that are attracting much attention from income seekers. Should you buy in?

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The buy-to-let market isn’t exactly in a state of collapse, but it’s certainly eroding at an alarming rate as rising tax, maintenance and regulatory costs take their toll. Indeed, latest UK Finance data showed the number of mortgage approvals for buy-to-let purchased dropped 1.5% year-on-year in October to just 6,600.

On account of the paltry returns that British landlords can now expect to make, I’d much rather go looking for rich investment returns through buying some of London’s big-yielding dividend shares. And one such business I’m thinking of loading up on today is Springfield Properties (LSE: SPR).

A better place

Unlike in the buy-to-let market, mortgage approvals for residential home purchases remain quite robust, reflecting a combination of favourable lending conditions and the assistance of the government’s Help To Buy purchase scheme. To illustrate this, the same UK Finance report showed the number of mortgage approvals for first-time buyers rose 2.8% in October to 32,260.

The trading landscape remains quite robust for the housebuilders like Springfield Properties, and thanks to its bulky 4.2% dividend yield for the current financial year (to May 2020) — one that beats the UK mid-cap average of 3.3% into submission — I reckon this one specifically is a top buy today.

But don’t just take my word for it. In latest financials released this week, the Scottish business said that the “good growth across the business” that it had witnessed at the start of the fiscal period had continued throughout the first half, adding that it had witnessed “an increase in completions and revenue in both private and affordable housing.”

This is no wonder given the size of the homes shortage north of the border, one that underpins City projections of a solid 9% earnings increase in the present period. An added bonus: right now Springfield is a bargain, trading on a forward P/E ratio of 8.5 times.

Too cheap to miss?

N Brown Group (LSE: BWNG) is another share which, owing to its colossal near-term yields, continues to attract no shortage of attention from dividend chasers. In fact, with a forward reading of 5.5% this share beats Springfield in the yield stakes. A forward earnings multiple of 6.2 times makes it pretty cheap on a bottom-line basis too.

That said, it’s not a share in which I’d consider investing my hard-earned capital for even a second. It doesn’t matter that this particular clothing retailer specialises in the growing plus-size segment, a combination of subdued consumer confidence and intense competition continues to plague trade at the small-cap.

And a report from Deloitte underlined the huge pressures facing the country’s clothes retailers, one in which it estimated that average discounts could hit 50% by Christmas Eve, such is the struggle to part customers from their cash. In this environment it’s only natural to fear for N Brown and its profits outlook, and by extension, its dividend outlook.

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 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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