Topps Tiles (LSE: TPT) is cheap, sure. But it’s one big-yielding share I won’t be loading into my Stocks and Shares ISA any time soon.
I don’t care about its monster 6.6% dividend yield. Okay, the firm hasn’t joined the long list of other stocks that have been axing payouts of late. The small-cap instead said last week it simply “does not expect” to dole out an interim reward because of the coronavirus outbreak. A hefty cut looks all but guaranteed though.
Topps Tiles has had its share of trading difficulties in recent years. Brexit uncertainty has hammered demand for its product from the construction industry. Sinking consumer confidence has also decimated sales to private customers. But the threat from the coronavirus could make these previous pressures look like small potatoes.
Sales to slip
The retailer saw like-for-like sales dip 3.1% in the 12 weeks to 31 March, a much-improved performance from recent periods. Corresponding revenues dropped 5.4% in the three months to December, and by a shocking 7.2% in the first eight weeks of the last quarter.
With its stores shuttered though, this brief top-line renaissance will prove short-lived. It’s why Topps Tiles withdrew its guidance for the full financial year (to September). The board commented: “The COVID-19 pandemic will result in a material reduction to our expectations for revenue and profit for the second half of the financial year.”
On the plus side, the company said should its premises remain closed for 12 weeks and endure “materially lower” sales when they eventually reopen for the next quarter, it would have “good levels” of liquidity for the remainder of the financial year.
Let’s give the company the benefit of the doubt and assume the government lockdown will ease by the end of June. I’m not sure I would want to own this share given the huge economic damage the coronavirus would still have caused. It’s a scenario that could drive unemployment through the roof and decimate already-weak consumer confidence.
Topps Tiles’ troubles at the tills could well spread beyond the current fiscal year. And I haven’t even got onto the added pressure created by ongoing Brexit-related uncertainty either.
Better ISA buys elsewhere
The Topps Tiles share price plunged to record closing lows of 25p per share last week. Remember though, the retailer’s been eroding in value for years now. It’s worth just a third of what it was a mere three years ago. There’s clearly little reason to expect the business to break out of this downturn.
City analysts expect annual earnings to fall 55% in the current year. I’m not backing it to bounce back any time soon. This is why, despite that near-7% forward dividend yield and low corresponding forward P/E ratio of 11.2 times, I won’t be touching it with a bargepole.
There are many better dividend stocks trading at dirt-cheap prices I’d rather buy today for my ISA.
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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.