This cheap FTSE 100 share offers a 4.5% dividend yield! Should you buy it today in an ISA?

This FTSE 100 share trades on a low earnings multiple. It offers a mighty near-term dividend yield too. But is it really too cheap to miss?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Is WM Morrison Supermarkets (LSE: MRW) a FTSE 100 share that’s too cheap to miss?

Morrisons undoubtedly offers plenty of bang for your buck on paper. This FTSE 100 share not only trades on a forward price-to-earnings (P/E) ratio of 12 times. It carries a delicious 4.5% dividend yield to boot. But it’s not a share I’m prepared to invest my hard-earned cash in.

Food producers and retailers are popular safe-haven shares during periods of extreme economic upheaval like these. But the likes of Morrisons aren’t quite as secure as investors believe. The extreme competitive pressures that have decimated this FTSE 100 operator’s share price (which is down 25% in the last three years) remain in play today.

In fact the ‘Big Four’ face extreme trouble in the short-to-medium term as crimped consumer spending power forces shoppers into the arms of discounters like Aldi and Lidl in greater numbers. It’s a landscape which the German disruptors exploited to full effect following the 2008/2009 banking crisis and saw them break the hold that the established supermarkets had on the market.

Screen of price moves in the FTSE 100

This FTSE 100’s stock under attack

FTSE 100 Morrisons will have to embark on further rounds of profits-crushing price cutting to stop another exodus of shoppers. But not even this may be enough as the new kids on the block continue with their aggressive expansion programmes. Just today, Aldi announced plans to open another 100 stores in 2020 and 2021 as part of its plan to have 1,025 outlets up and running by the middle of the decade.

It will also upgrade 100 of its existing stores and upgrade heavily in its distribution network to keep units stocked. But I’m not just concerned by the discounter’s plans to expand its bricks and mortar estate. Aldi launched its click and collect service last week as part of an assault on the lucrative online grocery segment. Expect more to come on this front too.

Shop around!

FTSE 100 Morrisons’ competitive pressures aren’t the only issues clouding its profits outlook either. The supermarkets were forced to book exceptional costs earlier in 2020 in the face of lockdowns and panic buying to keep their stores supplied. Clearly, investors should expect more supply bills as a second wave of Covid-19 hits the streets.

The prospect of Britain leaving the European Union without a trade deal at the end of 2020 offers extra worry for Morrisons with respect to its supply chains too. And this particular could prove more problematic for UK supermarkets long after the coronavirus crisis has passed.

All things considered then, Morrisons shares look cheap today. But the FTSE 100 firm’s cheap price reflects those incredible long-term challenges. This is why I’m not prepared to invest my money in the supermarket. I’d much rather invest in some of the FTSE 100’s other bargain shares, some of which can be found with the help of The Motley Fool and its epic catalogue of exclusive reports.

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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »