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?

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macro shot of computer monitor with FTSE 100 stock market data in trading application

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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.

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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.

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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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