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ISA investors! 2 cheap stocks with BIG dividends I’m avoiding at all costs

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Marshall Motor Holdings (LSE:MMH) is a big-yielding share I feel that ISA investors should avoid at all costs. I don’t care about its low forward price-to-earnings (P/E) ratio of 5.3 times. It’s mighty 8.5% dividend yield also doesn’t shake me. This is a share I won’t be buying for my own Stocks and Shares ISA.

Car sales are tanking following the Covid-19 outbreak, and the threat of a painful and prolonged economic downturn — exacerbated by the prospect of a hard Brexit — paints a worrying picture for vehicle demand for this decade. Latest data from the Society of Motor Manufacturers and Traders showed sales of new autos sank to their lowest level since 1946 in April.

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The AIM-quoted company saw like-for-like profits fall more than 4% in 2019 because of that aforementioned Brexit uncertainty. The shuttering of its showrooms more recently, and the threat posed by an upcoming recession, is particularly scary following a significant increase in the amount of debt on its books too. I plan to give this particular income share a wide berth.

A FTSE 100 stock

Would you be better off buying shares in FTSE 100 giant J Sainsbury (LSE: SBRY) for your ISA instead? It’s understandable that sales of big-ticket discretionary items are slumping right now and may keep doing so. But food is one of the essential purchases we cannot do without, whatever social, economic and political trouble is raging outside our windows.

As one of the UK’s major online grocery retailers, Sainsbury’s is in great shape to ride this trend, right? Forecasts just released by GlobalData underline just how much this particular market is expected to grow by, with lockdown measures turbocharging orders from stranded shoppers and isolation hastening e-commerce adoption by new users.

The research giant estimates that the online grocery retail market will grow by 25.5% in 2020, up from a prior estimate of 8.5%. According to GlobalData, steps by major UK supermarkets to expand their capacity for online orders will underpin this monumental surge. Sainsbury’s for one has opened up 50% more delivery slots than it had previously.

The letters ISA (Individual Savings Account) on dice on stacks of gold coins on a white background.

More big risk

The coronavirus outbreak may have quickened the adoption of internet grocery shopping. However, it’s no reason to buy into Sainsbury’s today, I feel. Tough economic conditions may see consumers flock to low-cost physical retailers like Aldi and Lidl in huge numbers once lockdown measures are lifted, troubles that may stretch long into the 2020s.

Besides, Sainsbury’s has long lagged its rivals like Tesco and Morrisons on the shop floor and in cyberspace. And signs are emerging that those German discounters are to take their first steps in the online grocery market too. The FTSE 100 share clearly has a lot more work to do to transform its sales performance before becoming a stock I’d consider buying.

So forget its low forward P/E ratio of 10/1 times and bulky 5.6% dividend yield. You’d be better off shopping for other income shares for your ISA, in my opinion.

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