The Motley Fool

ISA investing! Are these dividend yields around 5% brilliant buys or battered bums?

Though there are plenty of political and economic factors shaking financial markets right now — whether it be Brexit, Germany moving into recession, or the prospect of war between The West and Iran — today remains a great time for stock investors to nip in and grab a bargain.

There’s a sea of shares out there that offer a combination of low earnings multiples AND whopping-great dividend yields. Are the three I discuss below perfect picks for your Stocks and Shares ISA, though, or equities that should be avoided like the plague?

Getting burnt

Let’s kick things off by looking at The Restaurant Group (LSE: RTN). As well as carrying a forward price-to-earnings (P/E) ratio of 11.4 times the eateries giant carries an inflation-mashing dividend yield of 4.4% for 2019.

Don’t think of this low rating as a gross misunderstanding of the stock by market makers, though. The Frankie & Benny’s and Wagamama owner’s rock-bottom valuation reflects the rapidly-worsening outlook for the UK casual dining sector. This point is reflected by UHY Hacker Young data showing the number of insolvencies in the restaurant arena leapt 25% in the six months to June to an eye-popping 1,412.

The country’s restaurateurs are suffering a perfect storm of weaker consumer spending, market saturation and a steady rise in operating costs. The Restaurant Group swung to a pre-tax loss of £87.7m for the first half of 2019, from a profit of £12.2m a year earlier, on the back of these issues. And it’s hard to envisage the firm bouncing back any time soon.

A better buy?

Is Dixons Carphone (LSE: DC) a better destination for your investment cash, then? On paper at least it offers even more bang for your buck than The Restaurant Group, its forward P/E ratio of 8.5 times sitting inside the bargain-basement threshold of 10 times or below, and its corresponding dividend yield sitting at 5.6%.

But this other FTSE 250 firm is also loaded with an unacceptable amount of risk. Latest financials showed that, while electricals sales (on a like-for-like basis) in its core UK and Ireland division crept 2% higher in the 13 weeks to July 27, a 10% drop in corresponding mobiles revenues caused group sales to flatline in the period.

Dixons Carphone is being battered by weak retail conditions in the UK as well as the broader global trend of people waiting longer and longer before upgrading their mobile phones. And both of these issues threaten to worsen as the political chaos in Britain worsens.

Too good to miss

Those seeking the magic combo of big dividends and great value would be better served by buying shares in TBC Bank Group (LSE: TBCG) for their ISA instead, I feel. This FTSE 250 stock boasts a forward yield of 5.4% and a corresponding P/E multiple of 5.1 times, but I think the market really is missing a trick here.

Many investors might be put off by the bank’s operations in the far-flung emerging market of Georgia. However, as I explained recently economic growth rates in the Eurasian country have the potential to blast profits here to the stars. And this was underlined by TBC’s ripping performance in the first half of 2019, a period in which underlying net profit soared 18.8% to 258.3m Georgian Lari. So you could buy TBC for brilliant returns, not just now, but for many years into the future, I say.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, “10 Steps To Making A Million In The Market”.

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide.

Simply click here for your free copy.

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.