The Motley Fool

One 5%+ yield dividend stock I’d buy today and one I’d sell

Image source: Getty Images.

With a price-to-earnings ratio under 10 times and its safely-covered dividend yielding a full 5.5%, I’d expect embattled contract for difference trader CMC Markets (LSE: CMCX) to be popping up on many value investing screens these days. But is this CFD specialist a wise bet for investors as regulators target the industry?

Well, CMC management certainly appears to see the writing on the wall as regards the stricter margin limits, higher levels of client due diligence and restrictions on marketing its products to new traders/gamblers that regulators in the UK and EU are moving towards implementing.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The firm is responding to these likely moves by increasing its focus on long-term clients who can be termed ‘professional’ by regulatory standards, seeking to expand into less risky areas such as traditional stockbroking, and pushing into less regulated territories such as the Asia Pacific region.

The group’s Q3 trading update released this morning shows this is proceeding, with the number of active clients down 6% year-on-year while revenue per client increased a full 33% due to higher activity from big-spending ‘high-value clients’.

Yet while this increased shift towards high-rollers may lessen the impact of any proposed regulations on CMC’s ability to attract new customers, I still see plenty of reason to worry about the coming crackdown on the sector.

In H1, CFD and spread betting accounted for a full 94% of the group’s operating income, with the highly vulnerable UK and European markets providing a full 70% of net revenue from these products. This is largely why analysts are predicting a consensus 13% drop in earnings for CMC in fiscal year 2019, when any new regulations would begin to go into force.

While CMC does offer a very nice dividend and appears to be better positioned for the coming regulations than some rivals who are still attached to the old ‘churn and burn’ CFD business model, the uncertainty over the full scope of these regulations simply creates too much risk for me to be comfortable holding the stock right now.  

A diamond in the rough?

That’s not to say I’m risk-averse, because the contrarian in me is becoming interested in electronics retailer Dixons Carphone (LSE: DC). The group was forced into a costly profit warning in August as slowing demand for smartphones on expensive contracts, and the weak pound, led management to drastically curtail full-year profit guidance.

However, I don’t think it’s all doom and gloom for Dixons from here. The firm only has to look across the Atlantic to the success of Best Buy to see that the electronics it sells can weather the storm of e-commerce as many consumers still like to go in and try out these big-ticket items before buying.

Indeed, over the Christmas period this proved to be the case as the group offered up 6% like-for-like sales growth across all its regions, with the UK up 3% on its own. Although the new iPhone X may have provided a one-time bump to this performance, I still think Dixon’s low debt levels, rising market share, safely-covered 5.5% dividend yield and 9.8 P/E ratio make the company one interesting option for contrarian income investors.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Ian Pierce 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.