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Is this FTSE 100 high-yield stock too cheap not to buy?

Reflecting tough conditions on the UK high street, Marks & Spencer Group (LSE: MKS) can be picked up for next-to-nothing right now.

At current prices around 310p per share the FTSE 100 giant trades on a forward P/E ratio of 11.4 times, just a whisker off the widely-regarded bargain territory of 10 times or below.

Marks & Spencer’s steady share price decline that kicked off in the spring has also swelled yields. Therefore the 18.5p and 18.6p per share payouts forecast for the years to March 2018 and 2019 respectively result in a market-smashing 5.9% yield.

So is it worth a punt at these prices? I, for one, think not.

Here me roar… Please?

In fact, a case could be put forward that M&S is still not cheap enough given the company’s sustained failure to reignite its fashion sales, the company continuing to be left behind by its clothing rivals in terms of both style and price.

Its latest trading statement in January showed like-for-like group sales down 1.4% during the 13 weeks to December 30, with revenues generated from its clothing and homeware items slumping 2.8% on a comparable basis.

Marks & Spencer vowed back in November to become Britain’s “essential” clothes retailer, the company stating: “At all levels we are sharpening our ranges, to provide better choices with fewer options, and delivering contemporary wearable style to become more popular.”

But this is not the first time we have heard such grand plans from the shopping institution. And with conditions become tougher and tougher thanks to intensifying competition and growing strain on shoppers’ purses, these plans will be even harder to execute than ever before.

Reflecting these woes the City expects Marks & Spencer’s bottom line to continue shrinking — analysts expect the business to follow a 9% earnings drop in fiscal 2018 with a further 2% decline the following year.

And these estimates leave current projections looking just a little vulnerable. Dividend coverage through to the close of next year rings in at 1.5 times, some way short of the accepted safety benchmark of 2 times.

A better income bet

Those seeking inflation-beating dividend yields on a shoestring would be much better off shunning Marks and Sparks in favour of SThree (LSE: STHR), in my opinion.

While yields lag those of the Footsie retailer — predicted rewards of 14p and 15.1p per share for the periods ending November 2018 and 2019 respectively yield 3.7% and 4% — these figures can hardly be considered small beer.

Besides, dividend coverage ranges at a robust 1.9 times to 2.1 times through to the conclusion of next year. And SThree has no debt that could constrain future payments.

But it is the recruiter’s much sunnier profits outlook that really makes it a superior pick to M&S. Earnings rises of 12% for fiscal 2018 and 18% for the following year are currently anticipated, and it is not difficult to see why as business booms across the globe.

Gross profits from the US soared 18% last year, while in Continental Europe these jumped 9%, offsetting weakness in the firm’s UK and Irish markets. Given its terrific momentum, I reckon a forward P/E ratio of 14.1 times makes SThree an absolute steal today.

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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.