A Stocks and Shares ISA is a phenomenal tool for building wealth in the stock market. And even as UK shares reach new record highs in 2025, there remain plenty of lucrative high-yielding dividend stocks to take advantage of. In fact, there are currently 90 companies on the London Stock Exchange offering a payout of 7% or more.
However, as all experienced investors know, a high yield isn’t always a good thing. In fact, it can often be a warning sign to stay away. So with that in mind, when building a strong ISA income portfolio with £20,000, which shares should investors think about buying?
An 8.1% opportunity or trap?
One UK stock that’s started garnering a lot of attention in 2025 is B&M European Value Retail (LSE:BME), but not for the right reasons. After swelling in the wake of the pandemic, the discount retailer enjoyed a period of superb growth, boasting some of the highest profit margins in the industry.
Yet that seems to have entirely crumbled away with the stock falling by a painful 48% since the start of 2025. Obviously, that’s unpleasant for existing shareholders. But for new investors today, the stock offers a pretty substantial 8.1% yield.
So is this an opportunity or a yield trap?
What happened?
There are a variety of factors responsible for the downfall of B&M’s share price. But ultimately, it all boils down to poor capital allocation. With management overestimating demand due to temporary pandemic tailwinds, it opened too many new stores too quickly.
This, in turn, resulted in excess capacity, lower footfall, and higher operating expenses. But with other discount retailers cutting prices, B&M was forced to follow along to remain competitive without any matching cost reductions. And its once superb profit margins felt the squeeze.
Bull versus bear
As previously mentioned, with the damage now done, has a potential buying opportunity emerged for investors to add this business to their Stocks and Shares ISAs?
Despite the stock’s downward trajectory, there’s room for optimism. A price-to-earnings ratio of 5.7 makes it one of the cheapest retail stocks in the UK. And with management recognising its errors, it’s begun taking action through cost-cutting initiatives, supply chain optimisation, and the closure of underperforming stores.
If everything goes according to plan, by 2027, £100m of annual expenses will be wiped out. That will go a long way to restoring profit margins to their former glory, giving B&M the flexibility to offer more attractive prices than competitors at a high profitability – the perfect recipe for stealing back market share.
That certainly sounds encouraging. But it’s naïve to think that competitors will just stand idle while B&M takes over. Rival stores like Poundland and Home Bargains are also pursuing their own growth and margin expansion initiatives. And with a generally stronger reputation for product availability right now, luring customers back into B&M stores could be more challenging than expected.
All things considered, B&M presents an interesting turnaround opportunity for income investors comfortable with a bit of volatility.
There’s no denying the enormous level of execution risk surrounding this business, especially with recent concerns surrounding the group’s accounting practices. But with management taking seemingly prudent steps to fix their previous mistakes, I think it’s one of several contrarian opportunities worth investigating further in 2025.
