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A brilliant 6%+ yielder that I’d buy before October (and one that I’d sell)

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The last 12 months has proved to be something of a nightmare for loyal investors in Walker Greenback (LSE: WGB). The share price has shrunk by around three-quarters in the period amid a series of disappointing market updates.

Trading performance is unlikely to have got any better since the home furnishings firm updated shareholders during August. Indeed, I am expecting slew of fresh horrors when it releases half year numbers on October 10.

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More nerve-racking releases

Last month the AIM quoted company declared that “trading in the half year continues to reflect the difficult marketplace,” with sales of its branded products having dropped 5.7% during the six months to July.

The West London firm had also shocked the market with a fresh profit warning just a week earlier, warning at the time that “new information on the potential profit contribution from [a] large licensing agreement” would see full-year profit before tax “fall materially short of the board’s expectations,” at between £9.5m and £10m.

As if this wasn’t enough, Walker Greenbank advised it was viewing the critical autumn period “with renewed caution” as trading troubles had intensified in July following a brief improvement, with orders in the year-to-date slumping below expectations.

Cheap but chilling

The question now is whether the low, low forward P/E ratio of 6.1 times now fully bakes-in the probable scale of any further problems. I believe not, and expect additional frightful commentary in the months ahead. The City is currently predicting a 27% earnings slide in the 12 months to January 2019, a figure I can see being downgraded (along with the expected 3% earnings rise in fiscal 2020).

A jumbo prospective dividend yield of 6.3% through to the end of next year isn’t enough to draw me in either. I see additional scope for Walker Greenbank’s share price to slide some more.

Yields rise to around 8%

In fact, I reckon Walker Greenbank shareholders may want to consider selling the business before that potentially-disastrous trading update and snap up some shares in Stobart Group (LSE: STOB) instead.

The boardroom shenanigans at the FTSE 250 firm have continued to dominate the financial newswires and overshadowed fresh news of strong trading at the support services business. I’m expecting another robust set of numbers when interim results are released on October 24.

In July, Stobart confirmed that it remains on track to hit the 5m-passenger-per-year landmark at London Southend airport by 2022, as well as its objective of freighting more than 3m tonnes of renewable energy fuel each year by this date. What’s more, it also repeated its goal of “realising value through disposal of our non-operating assets to support the dividend.”

Reflecting this drive to bolster the balance sheet, the City believes Stobart will be able to lift the dividend to 18.5p per share in the year to February 2019, despite an anticipated 84% profits fall. Moreover, the projected 96% earnings rebound predicted for fiscal 2020 supports estimates of a 19.1p reward.

These anticipated windfalls produce meaty yields of 7.6% and 7.9% respectively. And I am tipping yields at Stobart to remain impressive as the company makes good progress on its growth plans.

A forward P/E ratio of 45.7 times is expensive on paper, but in my opinion the firm is worth every penny.

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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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