The recent stock market crash has created a galaxy of dirt-cheap, big-yielding investment traps waiting to trip share buyers up. M Winkworth (LSE: WINK) is one of these high-risk companies that I would avoid at all costs.
Winkworth has avoided slashing dividends in recent days, unlike its estate agency rivals like Belvoir and Savills. It’s a decision the company may have to row back on should the UK remain on lockdown beyond spring. It’s not extreme to think that the housing market may stay paralysed for longer.
Home sales have slumped as the government-imposed quarantine has come into effect. Property viewings are currently prohibited. Latest data from Zoopla show that the number of property sales has tanked by almost three quarters since isolation measures were introduced in mid-March. A recent ramp-up in Covid-19 infection rates suggests that the shutdown affecting the estate agency industry could continue for some time yet.
More bad data
Fresh survey data from the Royal Institution of Chartered Surveyors (RICS) raised fears still further. The body says that its members’ sales expectations for the next three months are at the lowest level since its records began in the late 1990s.
A net balance of -92% of respondents expect sales to drop in the period. This means that more than nine-tenths of surveyors believe sales will decrease rather than increase.
RICS members also reckon that prices will be at their weakest since the 2008–09 banking crisis. They also suggest that any market recovery could be some way off. A net balance of -42% of participants expect prices to fall over a 12-month time horizon, too, rather than rise.
Commenting on the figures, RICS says “the fact that responses are negative not just at the three but also the twelve month time horizon is significant in suggesting that the legacy of covid-19 could be such that any return to what might be described as ‘normality’ in the economy will take time and households will remain cautious for a while.”
A stock market crasher to avoid
Of course the coronavirus crisis isn’t the only threat to Winkworth and its peers’ fortunes. Possibly not just over the next 12 months but beyond, too.
While the homes market got off to a flyer at the start of 2020, this was because of the removal of the threat of an economically-catastrophic no-deal Brexit at the end of January. The threat is likely to emerge again in the coming months though. It is written into UK law that the Brexit transition period will end at the close of 2020. And the government has repeated time and again its desire to exit then under any circumstances.
At current prices, Winkworth changes hands on a forward price-to-earnings (P/E) ratio of 9.6 times. City expectations that it will pay another 7.8p per share full year dividend create an enormous 8% yield, too. Tempting numbers, absolutely.
But not tempting enough for me given the strong possibility of a profits crash and the scythe coming down on dividends. I’d avoid this AIM stock despite its low cost following the share market crash.
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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.