The Motley Fool

These dividend stocks yield up to 8%! Are they brilliant ISA buys or investment traps?

Image source: Getty Images

I love big dividends but won’t be spending my hard-earned cash on N Brown Group (LSE: BWNG). This is a share with 7%-plus dividend yields, but one that I consider to be an investment trap given the worsening retail conditions in the UK.

There’s been no stop to the amount of worrying data coming out of the retail sector. Insolvency specialists Begbies Traynor are the latest to illustrate just how tough conditions are. It says the number of retailers in “significant distress” in the fourth quarter rose 2% annually to 31,615.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Retailers in trouble

And it’s not just bricks-and-mortar businesses that are struggling either. Apparently the number of online retailers in severe financial straits leapt 8% year on year in the period. So much for N Brown’s decision to abandon physical stores and trade solely online, then.

I don’t care about the firm’s cheapness. It trades on a forward price-to-earnings ratio of just 4.5 times and boasts a bulky 7.9% dividend yield, too. N Brown’s a share that carries far too much risk right now.

The tough retail conditions are playing havoc with those retailers at the budget end of the market, too. You’d think that operators like Card Factory (LSE: CARD) would thrive in the current conditions.

Greetings cards and related paraphernalia are always in demand regardless of broader economic conditions, right? And the likes of Card Factory should be capitalising on the tough environment as shoppers switch down from more expensive operators like Clintons and WH Smith, no? Well Card Factory’s latest trading release showed that such notions are hopelessly wide of the mark.

Profits keep sinking

Adjusted underlying earnings for this year (the period ending January 2020) will fall again, it said earlier this month. A reading of between £81m and £83m is expected, down from £89.4m in financial 2019. In the 11 months to December, like-for-like sales had fallen 0.6%, worsening from the 0.1% fall seen a year earlier. And online sales are cooling at an alarming rate, too – up 14.8% in the period to December versus 59.1% in the corresponding 2019 period.

City analysts expect Card Factory’s woes to persist for much longer, too. Like over at N Brown, they expect earnings to drop in the next financial year as well. I for one am not confident that profits at either small cap will rebound any time soon, either, even if consumer confidence has perked up more recently.

According to PwC, consumer sentiment has just hit its highest level for five years (at +3) thanks to what it says is a mix of “real wage growth, low interest rates, and political change.” But with Brexit tension threatening to explode later this year I fear that this could be just a flash in the pan. This is why, despite Card Factory’s low forward P/E ratio of 6.5 times and 8% corresponding dividend yield, I’m happy to give it, like N Brown, a wide berth.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended WH Smith. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.