1 cheap 4.6% yielding FTSE 250 stock I’d buy for my ISA in September!

On the hunt to bolster her ISA, Sumayya Mansoor explains why she’s a fan of this FTSE 250 retailer for growth and returns.

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Each month I try to set aside some money to invest. One FTSE 250 stock I’m eyeing up this month is Pets At Home Group (LSE: PETS).

Here’s why I’d buy some shares if I can free up some funds to invest.

Caring for our pets

Unfortunately, there are no prizes for guessing what Pets at Home does. In fact, you’ve probably come across one of its stores or services, whether you’re a pet owner or not, which is a nod towards its vast presence and brand power.

The business offers an array of services from food and pet care to vet services. It operates through its retail outlets, as well as online too, in keeping with modern methods of shopping.

The shares have been on a downward trajectory in the past 12 months, losing 19%. At this time last year, they were trading for 379p, compared to current levels of 304p. However, I believe this just offers me a better entry point to snap up quality shares.

My investment case

Research shows that pet ownership in the UK is at all-time highs. In fact, 57% of households in the UK now own a pet. Furthermore, Statista reports that pet ownership has been on the rise for years, and this upward trajectory will continue. I reckon this is good news for Pets At Home, due to its market position, brand power, and previous track record. Earnings and returns could be set to continue to grow.

Speaking of returns, a dividend yield of 4.6% helps build my investment case. This passive income opportunity of is hard to ignore. However, I do understand that dividends are never guaranteed.

Moving on, the falling share price has provided me with a great entry point at present. The shares currently trade on a price-to-earnings ratio of just 13.

Finally, the business has an excellent track record of growth, performance, and market dominance. Although I understand past performance is not an indicator of the future, these are all positives for me to draw from when compiling my investment case.

Risks and my verdict

From a bearish standpoint, it’s worth noting that economic fluctuations can have a negative impact on Pets’ earnings, as well as investor sentiment. This is one of the reasons I reckon the shares have fallen. Consumers are currently battling higher living costs, and may not be able to splurge on their beloved pets. Continued economic pressure is something I’ll keep an eye on.

My other worry for Pets At Home is the emergence of online only competitors. The changing habits of consumers – namely online shopping – has led to a spike of new kids on the block. These disruptors will be looking to chip away at Pets’ market dominance, and don’t have to contend with overheads such as large retail estates, like Pets at Home does.

After taking everything into account, I think the pros of the investment case outweigh the cons by some distance. A dominant market position, continued investment into the business to stay ahead of the curve – such as a re-brand recently – as well as an attractive passive income opportunity and enticing valuation build my investment case.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Pets At Home Group Plc. 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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