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Forget Barclays and its near-6% dividend yield! I think this is a better buy for your ISA

For those seeking access to big dividend yields at low cost, Barclays (LSE: BARC) may appear to be an unmissable treat.

With City analysts predicting a 12% earnings rise in 2020, the annual dividend is expected to grow again, resulting in a 5.8% yield which sits a whole percentage point above the FTSE 100 average.

Those predicted profits also leave Barclays trading on a forward P/E ratio of 7.1 times, some distance inside the widely-regarded bargain basement benchmark of 10 times and below.

Clearly, Barclays has a lot to offer on paper though, in my opinion, the risks of current forecasts being blown wildly off course are too high for me, despite the bank’s low, low price.

I recently commented how another blue-chip bank, Lloyds, is being constrained by a combination of intense Brexit-related uncertainty and an environment of low interest rates. Unfortunately, the outlook is also becoming cloudier and cloudier.

The OECD is the latest body to have cut its economic forecasts this week and expects GDP on these shores to crawl just 1% higher next year. However, it also warned the impact could be worse should the UK embark on a no deal withdrawal from the European Union.

A better cut-price income stock?

The housebuilding sector hasn’t been quite as bulletproof in recent times either, as these uncertain political and economic times have put paid to the eye-popping property price growth of recent decades and with it, the soaring profits growth across the sector.

Still, conditions remain supportive enough for many of these construction plays to keep growing the bottom line and thus to continue paying above-average dividends as well.

Redrow (LSE: RDW), for example, is expected to grind out a modest 1% profits rise in the current fiscal year (to June 2020) and therefore to keep raising dividends too. And this creates a bumper 4.9% forward yield.

Market conditions remain strong

Buying activity from existing homeowners might have ground to a halt, but the appetite from those purchasing their first homes has kept the newbuild market afloat. And there’s little evidence that solid demand here is yet to run out of steam — latest figures from UK Finance showed the number of first-time-buyer mortgages continued to grow in September, up 1.6% year-on-year at 29,100.

I’d happily stuff Redrow into my own Stocks and Shares ISA today then. Investors can access bigger dividend yields with other housebuilders, but none at present offer the rock-bottom earnings multiples of this particular FTSE 250 operator, which trades on a forward P/E ratio of 6.9 times.

Uncertainty over the impact of Brexit for the domestic economy in the near term and beyond may stretch beyond 2020, but I reckon Redrow should continue to thrive as a massive homes shortage keeps driving sales of newbuild properties.

I’d much rather save any cash I was thinking of spending on Barclays stock and use it to buy shares here instead.

A top income share with a juicy 6% forecast dividend yield

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Lloyds Banking Group, and Redrow. 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.