Got £2k for an ISA? One 5%+ dividend stock I’d buy today

Shares in this firm have fallen 70% over the last year. But the return of its founder could be a buy signal, says Roland Head.

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The collapse of the Superdry (LSE: SDRY) share price has been a painful experience for shareholders. But this week has seen dramatic developments at the company.

Today, I’ll give my view on this troubled fashion brand. I’ll also take a look at a FTSE 250 stock that’s expanding rapidly but struggling to win back investor loyalty.

Board quits as founder returns

On Tuesday, Julian Dunkerton won a shareholder vote by just 2.3%, reinstating him as a director of the company. As a result, the firm’s entire board resigned, along with both of its corporate brokers.

His co-director Peter Williams is likely to handle the business headaches this has caused while Dunkerton’s role will be to find a way of returning the business to growth.

What went wrong?

Ex-chief executive Euan Sutherland said that warm weather and too much reliance on winter clothing were to blame for the firm’s problems. Dunkerton said that long lead times, poor product choices and discounting were at fault.

From the outside, it’s hard to be sure who’s right. But Sutherland had very little fashion experience and Superdry’s performance has declined since Dunkerton left in March 2018. Giving him another chance makes sense to me.

Can Superdry be fixed?

Dunkerton’s co-founder James Holder is said to have new designs ready. These will be made in Turkey and should be in stores this summer — quicker than if they’d come from the firm’s usual factories in China.

From what I can see, the pair aim to strengthen the Superdry brand and move it away from being seen as just a retailer

One advantage they do have is that the company is debt free and has historically generated plenty of cash. This means changes can be made without having to keep lenders happy.

Another attraction is that although profits are expected to fall by 40% this year, the dividend is still covered twice by forecast earnings. The shares now trade on just 8.4 times forecast earnings with a 5.8% yield.

That seems a good starting point for a turnaround investment to me. I don’t know if Dunkerton will succeed. But as an 18% shareholder he has a strong incentive. I’d be happy to buy at this level.

A risky bet?

I’m less bullish about fast-growing gaming firm GVC Holdings (LSE: GVC), which owns the Ladbrokes Coral change of bookmakers, plus a range of online gambling businesses.

GVC shares have fallen 50% from last summer’s all-time high of 1,184p as analysts have slashed their profit forecasts in the face of tougher high street regulation. Investor confidence also took a knock recently when chairman Lee Feldman and CEO Kenneth Alexander sold shares worth £20m.

Trading during the first quarter of the year has been positive, with online gaming revenues up by 17%. But UK high street trading was described as flat. And new rules cutting the maximum stake on in-shop gaming machines from £100 to £2 came into force on 1 April.

It’s too soon to know how this change will affect profits from Ladbroke Coral’s 3,400 shops. But with net debt running at 2.5 times EBITDA and an uncertain outlook, I see GVC as a poor choice for investors.

The 6% dividend yield may seem tempting, but I believe there are better buys elsewhere in this sector.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended GVC Holdings and Superdry. 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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