One stock I won’t buy despite its HUGE dividend yield, and one I would buy

On the hunt for big dividend yields? Royston Wild looks at two income stocks and considers which you should buy and which you should bin.

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On paper, Workspace Group (LSE: UKP) is a share that has a lot to offer income investors. The recent stock market crash leaves it with a big forward dividend yield of 4.5%. It’s also a UK stock that has resisted the temptation of many to immediately pull shareholder payouts.

I worry that the business will end up disappointing on the income front, however. With the UK economy sinking it’s likely that demand for its office, industrial, and workshop spaces will sink steadily. City predictions of additional earnings and dividend growth this year could end up falling very flat.

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The threat was underlined in Workspace Group’s latest financials last week. In them, the FTSE 250 firm declared that half of rents due at the end of March had been unpaid. It added that “customer discussions on rent deferrals [are] continuing on a case by case basis.” It’s a scenario I fear the business will have to get used to.

Despite the recent share price crash Workspace Group still looks quite pricey. A price-to-earnings (P/E) ratio of 18.2 times for 2020 is below its historic norms, sure. Though with a prolonged and painful coronavirus crisis threatening to materialise, and the spectre of a potentially painful Brexit also floating in the background, it’s a reading that’s still too high to tempt me to invest.

A better big dividend yield

I’d be much happier to ignore Workspace Group and put my hard-earned cash into Highland Gold Mining Ltd (LSE: HGM) instead. It trades on a P/E ratio of just 7.4 times for 2020 and carries a huge dividend yield of 6.5%, too.

The economic impact of the coronavirus continues to beat all expectations. Latest US non-farm payrolls data showed an extra 6.6m file for unemployment benefits last week. This beat the broker consensus by more than one-and-a-half-million and has taken the country’s unemployment rate to 14%.

This is higher than the rate reported during the Great Recession of the 1930s. These are scary times for the global economy and central banks are likely to keep on printing money like there’s no tomorrow. The Federal Reserve today announced news of even more stimulus following those terrible jobless numbers.

Fear factor

There’s clearly plenty of scope for gold prices, which have moved back above the $1,650 per ounce marker last week, to keep rising as macroeconomic and inflationary fears rise, then. The International Monetary Fund on Friday announced that it expects a whopping 170 countries to experience negative per capita income growth this year. Things could get even worse should the pandemic persist into the summer and/or reemerge during the colder season of late 2020.

It pays to continue having some exposure to safe havens like gold, then. And by buying into the likes of Highland Gold Mining you get the twin benefit of being able to ride a rising gold price and getting hold of some huge dividend yields, too.

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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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