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Looking for top ISA buys? I’d buy this 4%-plus dividend yield for this bear market

It appears that Stocks and Shares ISA investors looking to bulk up their portfolios right now are thin on the ground. It’s difficult to blame them, given some of the shocking news flow surrounding the coronavirus outbreak.

For those willing to take the plunge, however, I reckon Pennon Group (LSE: PNN) is worthy of serious attention today. The water supplier hasn’t been able to avoid the washout of UK stocks of recent days. Its share price fall, though, has been rather modest compared to most other equities. And it’s possible that this share could be the first to pick up when investor appetite returns to the marketplace.

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Any breakthrough in terms of battling the coronavirus threat isn’t likely to deliver a silver bullet to nervy market sentiment in March, though. The world will be on watch for signs of a flare-up in infection rates. As a consequence, demand for safe-haven stocks like utilities providers could fly.

Divestment interest

Pennon could emerge as a particularly attractive buy for income investors following recent share price weakness. Dividend yields of 3.9% and 4.1% for the fiscal years to March 2020 and 2021 respectively are quite fatty. They also smash the British mid-cap average of 3% by some distance.

The FTSE 250 firm’s decision to sell its Viridor waste management business could also boost its share value value next month. People involved in the sale reckon that the market-leading unit could be worth up to $5bn, say Bloomberg journalists. It looks as if a bidding war could be just around the corner, with a number of suitors including Macquarie Group and KKR and Co. seemingly interested.

It’s no surprise that its waste-to-energy division is expected to command such interest given increasingly green legislation. As Pennon noted back in November, “With its diversified complementary operations and unique competitive advantages, Viridor is well positioned to take advantage of strong market dynamics and a favourable UK policy environment.”

Earnings flow higher

It’s possible that the release of upcoming financials could boost the water provider, too. Fresh trading details are scheduled for release on 30 March. And based on recent updates I’m excited about what Pennon will have to say for itself. Last time out in November it advised that adjusted EBITDA rose by a chunky 3.3% (to £311.5m) during the six months to September.

Pennon has certainly proved to be a popular flight-to-safety asset in recent times. Its share price is up 53% in the past six months, even in spite of this week’s falls. Investor fears over Brexit, US-Chinese trade wars and a variety of other geopolitical and macroeconomic issues have kept investor demand for its stock ticking along nicely. Signs of further stress in 2020 (coronavirus or no coronavirus) should keep it rising through 2020, too.

At current prices Pennon trades on a forward price-to-earnings ratio of 19.6 times. In light of the company’s brilliant defensive qualities I reckon this is a bargain. I’d happily buy the utilities giant for my ISA today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon 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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