The Motley Fool

Should you buy this dividend stock?

Image source: Getty Images

These are dangerous times for share investors. There’s a galaxy of cut-price dividend stocks that look very appealing right now. A great number of them though, are classic investor traps waiting to rob you of your wealth.

Lookers (LSE: LOOK) is one to avoid, even if it offers the biggest dividend yields of all the UK’s listed car dealers. For 2020, this sits at a mighty 14.7%.

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...

The small-cap’s got all the hallmarks of a possible dividend trap. In addition to that gargantuan yield, it sports a forward price-to-earnings (P/E) ratio around 4 times too. It also announced in March it wouldn’t be paying a final dividend for 2019, on account of the pandemic.

Lookers is fighting a number of serious fires at the same. It’s obvious why share pickers are so keen to give it the cold shoulder.

Corona crisis

It makes sense to begin by looking at the retailer’s most recent troubles, i.e. the coronavirus outbreak. It’s obvious mass quarantining would have a devastating effect on sales of automobiles in the UK. But even so, sales data from the Society of Motor Manufacturers and Traders (SMMT) is quite breathtaking.

According to the body, just 254,684 new units drove off of British forecourts in March. This was down an eye-watering 44.4% year-on-year, it said today, and the worst result since the 1990s.

Consequently, the SMMT slashed its sales forecast for the full year. It now expects 1.73m cars to be sold on the domestic market, down 23% from its previous forecast. Some 2.3 autos were sold in 2019.

More woes

The Covid-19 crisis is something Lookers, and the broader car industry, can ill afford right now. Sales of new vehicles have fallen for three years in a row on a number of issues that still need to be resolved.

The economic uncertainty related to Brexit has also hammered auto sales to both individuals and business in recent times. The virus breakout had clouded the picture even further. But, as things stand, the UK will, by law, exit the transition period at the end of the year. So a financially-catastrophic no-deal withdrawal from the European Union remains on the cards.

There also remains massive confusion over official policy on emissions standards.

A dangerous dividend stock

The retailer threw up more headaches last month when it announced it had “identified potentially fraudulent transactions in one of its operating divisions.” The impact of said activity isn’t thought to be material, though a full investigation was said to be forthcoming.

The news prompted chief operating officer Cameron Wade to leave the company with immediate effect. It also pushed back the release of full-year financials until the second half of April.

Renewed buyer interest has lifted the Lookers share price from the recent record lows, of 11p. I see no reason to load up on the retailer’s stock however. The near-term risks remain colossal and, though it’s cheap, this is a reflection of its massive troubles. Like me, I think you should avoid this dividend stock at all costs.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

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.