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These 6%-plus dividend yields are on sale! Should you buy them for your ISA?

Should those investors looking to buy big dividends on a shoestring buy N Brown Group (LSE: BWNG) right now? City predictions of an 8% earnings rise in the current fiscal year (to February 2020) leaves the niche-and-value-clothing retailer dealing on a price-to-earnings ratio of 5.1 times. It offers a corresponding dividend yield of 6.5%, too.

I for one, however, am not tempted for even a second to load up on N Brown’s shares despite those attractive numbers. Last time the Jacamo owner updated the market is said that product revenues dropped 9.3% in the six months to August, while the need to keep aggressively discounting forced operating margins to fall 190 basis points to 51.5%.

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The retailer’s decision to switch to an online-only format may have saved it from a premature death though there’s no guarantee that trading just through the internet will save its bacon over the long term. N Brown is just one of the country’s mid-level clothes retailers to ramp up its cyberspace operations, a decision which also puts it in direct competition with online giants ASOS and boohoo.

More trouble on the way?

And of course the political and economic turmoil hampering Britons’ appetite to shop looks likely to persist through 2020 at least as the Brexit saga rolls on.

To illustrate the point, executive chair of New Look Alistair McGeorge announced last week – in a release in which the cut-price clothing retailer declared that like-for-like sales ducked 7.4% in the six months to September – that his company “[does] not expect the retail environment to improve” soon, or more specifically any time before March.

This difficult landscape means that I’m not impressed by N Brown’s low forward P/E ratio in the slightest, though the chances of earnings estimates aren’t the only thing I’m concerned about.

The number crunchers hope that fiscal 2019’s dividend of 7.1p per share will rise to 7.7p this time around. However, the company’s patchy profits outlook in the near term and beyond, allied with its still-growing debt mountain (net debt rose almost £14m over the first half to £481.6m), means that I’m far from convinced by that yield either.

A better dividend buy!

I reckon those seeking to bulk up their income flows on a budget would be better off buying Devro (LSE: DVO) instead.

Progress under its Devro 100 growth programme has been steady rather than spectacular but signs are emerging that it’s beginning to click through the gears. Latest trading details showed volumes grow 1% in the three months to September, snapping from the 1% decline punched in the first half. And the business said that it expects sales to keep accelerating through the remainder of the year.

An improving top line isn’t the only cause for celebration, though, as under Devro 100 it’s also taken the hatchet to costs. Devro remains on course to achieve £7m worth of savings in 2019, and in a bid to improve efficiency still further, announced last month plans to close its Bellshill site in Scotland and to shake up its supply strategy.

With earnings expected to grow 8% in both 2019 and 2020, Devro’s predicted to keep lifting dividends through the period, and this results in bulky yields of 5.8% and 6.1% for these respective years. Throw a forward P/E ratio of just 10 times into the bargain and I reckon the sausage star is a top buy for anyone’s ISA.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS and Devro. The Motley Fool UK has recommended boohoo group. 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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