Electrical and telecoms retailer Dixons Carphone (LSE: DC) crashed out of the FTSE 100 three years ago, as the weaker pound pushed up import costs and online competition hit sales. It was struggling, even before the pandemic shut its shops.

The Dixons carphone share price has lost 80% of its value in the last five years. Today, it trades at just 8.1 times earnings. Does that make this UK share a bargain, or a value trap?

Fighting back after the crash

Dixons, which owns Currys and PC World, has been fighting back successfully online. Its Shoplive platform lets customers book online appointments with in-store assistants and see video demos before buying. The result: online sales tripled while stores were shut in May and June and jumped 122% in the following nine weeks.

Last week’s trading statement suggests online sales are holding up, even as shoppers venture out again. Stores are closing and jobs are going, and airport sales worth 5% of its total remain grounded by the travel lockdown. However, if Dixons Carphone can establish itself as a thriving online business, it could have a more secure future. It now seems well placed to survive further lockdown measures, with a net cash position and access to £1.3bn in debt facilities. There is no dividend for now, but I still think this UK share is a long-term buy.

Clothing chain Next (LSE: NXT) has also shown it can survive the high street meltdown. Again, it is mostly doing this by building an online offering, in addition to its bricks and mortar outlets. Covid-19 has been harsh, with full-price Q2 sales falling 28%. On Thursday, Next is expected to report an 80% drop in first-half pre-tax profits to £320m. However, the FTSE 100 group remains on course to cut net debt and stay within its cash resources.

UK shares bucking the trend

Next has protected its balance sheet by cancelling dividends, scrapping share buybacks, selling assets and cutting capital investment. Management is positive, with plans to open three beauty halls in former Debenhams stores. It has just acquired a majority stake in the UK and Irish arm of L Brands’ Victoria’s Secret unit, as part of a joint-venture agreement.

Online sales continue to rise and even store sales have held up better than expected. Like many UK shares, much now depends on social distancing rules, earnings, unemployment and whether we get another lockdown.

The Next share price has rallied strongly since the stock market crash, rising 55% in the last six months. That leaves it trading at 12.69 times earnings. That’s cheap as UK shares go, but not dirt cheap. There is no dividend for now, but it should come back one day.

Times will still be tough for these two UK shares, but they have shown admirable resilience so far.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. 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.

This is an opportunity for retailers to get customers through the door, and wealth platform Interactive Investor has picked out two high street chains that may be worth buying in advance of next weekend’s splurge.

Dixons Carphone

Electrical retailer Dixons Carphone (LSE: DC) could do with some festive magic sprinkled over its share price, with the stock down 23% over the last year, and a thumping 66% over five years, driving it out of the FTSE 250 in May 2017.

Black Friday typically sees shoppers rush into electrical retailers, and the group’s brands in, Currys PC World, Carphone Warehouse and iD World, could reap the benefit. Dixons Carphone also owns electronics chains Elkjøp, Elgiganten and Gigantti in the Nordics, and Kotsovolos in Greece, and they will be joining in the global frenzy.

Most people buy electronics stuff online these days, but Interactive Investor head of markets Richard Hunter says Dixons Carphone has responded by taking “the clever approach of moving slower moving lines of stock online so that it can continue to transform its in-store experience”, and develop services such as the rollout of Gaming Battlegrounds.

Dixons Carphone, whose market cap has shrunk to £1.42bn, is a bargain itself, trading at just 8.5 times forward earnings. It offers a whopping forecast yield of 5.7%, with cover of 2.2, but tread carefully, as some think it is a shocking dividend trap.

I’m wary myself, and concerned to see City analysts predicting a 28% drop in earnings per share in the year to 30 April 2020, although they reckon things will recover the year after, growing 17%. Black Friday may offer a boost, but Dixons still has a long way to go.

Sainsbury’s

Hunter’s other Black Friday tip is FTSE 100 listed supermarket Sainsbury’s (LSE: SBRY), also in need of some festive fairy dust, with the share price down a third over the last year, partly due to the failed tie-up with Asda. At 212p, the Sainsbury share price is a third lower than it was 10 years ago.

Aldi and Lidl continue to seize market share by offering cut-price competition, while low consumer sentiment has also hit sales. However, shoppers are now getting richer in real terms, with inflation falling to 1.5%, but salaries growing 3.9% over the last three months.

CEO Mike Coupe fell short with Asda but his merger with Argos seems to be going reasonably well, and Hunter reckons this is where the Black Friday glory will come from: “Having had some success in 2018, Argos has already started a ‘Crazy Codes’ sale and is promising a bumper announcement in the lead up to Black Friday.”

Again, Sainsbury’s looks cheap trading at just 10.4 times forward earnings, while the forecast yield of 5% is covered eight times. The big danger is that market share just keeps on falling, while earnings are forecast to drop 8% this year and 4% next, so it could continue to struggle.

Black Friday may deliver a one-off boost, but both Dixons and Sainsbury’s need to prove their merit year round.

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Harvey Jones 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.

Dixons Carphone

Dixons Carphone (LSE: DC) dropped out of the blue-chip index in May 2017 and has been ringing up wrong numbers ever since.

The electrical and telecoms retailer, formed in 2014 by the merger of Dixons Retail and Carphone Warehouse Group, is down almost 30% over the last 12 months, and 67% over three years.

It has been hit hard by tough competition, notably from Amazon, while the weaker pound has driven up the cost of imported electrical items, making the group yet another victim of the squeezed UK retail sector.

The mobile phone market is no longer the growth monster it once was, as the likes of Apple struggle to come up with a new killer function. The biggest pull of the new iPhone 11 Pro is three cameras instead of one. Don’t all rush. Accordingly, Dixons’ Q1 mobile sales fell 10%, as more people cling to their old hardware, buy unlocked handsets, or SIM-only deals.

Dixons Carphone’s market cap has shrunk to £1.3bn but many will be tempted by its low valuation of just 8.4 times forecast earnings, and big fat juicy yield of 5.6%, covered 2.1 times. Against that, you have to weigh the group’s rising net debt and falling cash flows. As the Brexit squeeze on consumer sentiment intensifies, I suspect this stock could prove a bad call.

Direct Line Insurance Group

Direct Line Insurance Group (LSE: DLG) crashed into the FTSE 250 in September after the share price took another downward lurch following a 10.8% drop in first-half pre-tax profits to £261.3m. This is a long-term slide, with the Direct Line share price trading 20% lower than three years ago. 

The group has been hit by the Financial Conduct Authority’s regulatory probe into car and home insurance pricing, amid long-standing complaints that new customers get a much better deal than existing ones. While the FCA is not explicitly targeting Direct Line, it has been hit notably hard because it makes most of its money from these two markets, against less than 20% of profits at globally diversified rivals such as Aviva and RSA Insurance Group.

Competition for motor insurance customers is also tough, as comparison sites intensify the focus on price, to the point that Direct Line refuses to appear on them, which shuts off an awful lot of customers.

Direct Line nonetheless has a strong brand and modest debt. Two other factors count in its favour. First, the £4bn group is trading at just 10.8 times forward earnings, which suggests many of its recent troubles have been factored into the share price. Second, it yields a bumper 9.5%.

In March, management announced a 2.9% hike in the final dividend to 14p, but almost halved the special dividend to 8.3p. With cover down to one, today’s payout it is unlikely to be sustainable. However, given the dizzyingly high yield, it is likely to remain an attractive dividend income stock even if the payout is trimmed again.

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Dixons’ nightmares with its core mobiles business are now quite long in the tooth yet remain frustratingly troublesome. A string of impairments here caused the firm to swing to a £259m pre-tax loss for the last fiscal year, from a £289m profit previously.

Consumers are taking longer to upgrade their handsets post-contract, meaning that Dixons needs to pull out all the stops to part them with their cash. And this comes at a cost. Indeed, the FTSE 250 firm says accelerating the integration of its electrical and mobiles units to stem the tide will result in “a significant loss” once again at the latter unit in the current year year. However, it adds these measures should help it to break even at a minimum inside the next two fiscal periods.

Mobiles mashed

I’m not so certain that Dixons has what it takes to achieve this lofty goal, though. It’s not just that the challenging economic conditions for consumers are taking their toll, something which is turbocharging the number of people seeking cheaper SIM-only deals, or other more flexible payment options.

The buzz of having the most up-to-date phone model, whether to show off to friends or just having the latest technology at your fingertips, simply isn’t as strong as it was just a few years back. Just ask Apple why demand for its iPhones is slumping all across the globe.

Sure, Dixons may be spending a cool £275m on those aforementioned restructuring measures, and forking out a fortune to revamp its phone ranges, tariff options, and payment plans to bring them more in line with modern customer demands. But for the moment, I’m prepared to err on the side of caution and anticipate its pain extending beyond the next couple of years.

Are dividends in more danger?

So what does all this mean for Dixons’ dividends? We’d been warned back in December of a dividend cut for the year ended April, and in the end a 6.75p per share total reward was paid, down from 11.25p in the prior period.

The retail giant is hoping to pay out at similar levels in the current fiscal year, though I have my concerns. Aside from the troubles it’s having on the mobiles front, Dixons will also have its work cut out to meet its expectations of sales and profits growth for its electricals business at home and abroad as shoppers reign in spending.

If anything, broader retail conditions in the UK are getting worse, not better, and threaten to continue nosediving given the ongoing impasse over Brexit. At the same time, Dixons’ balance sheet is weakening, net debt on the books swelling to £265m last year from £249m before, and free cash flow falling by almost £20m to £153m too.

For these reasons I’m prepared to look past Dixons’ 6.1% dividend yields and invest my hard-earned cash elsewhere.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. 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.

However, right now, shares in the business are trading at such a low valuation that I think investors buying today could pocket substantial profits even though Dixons’s earnings are not expected to return to growth perhaps until 2021.

Indeed, at the time of writing, shares in the company are changing hands at a forward P/E ratio of around 5 compared to the market average of 12.7. This implies that when growth returns, the stock could rise 100% from current levels. Granted, it is going to be some time before turnaround starts to bear fruit. Last week the firm said it expects to report overall headline profit before tax for the current year of £210m, down from £298m last year. Nevertheless, management seems confident that growth will return in the second half of the next decade. 

In the meantime, shares in this consumer electronics business will pay a dividend of 6.75p per share this year, giving a dividend yield of 6% at current prices. 

Surging profits

Another undervalued FTSE 250 stock that I think could double from current levels is OneSavings Bank (LSE: OSB). This challenger bank has carved out a niche for itself in the buy-to-let lending market over the past nine years. As the company has won over new customers with its refreshing lending proposition, net profit has increased at a compound annual rate of 39% since 2013, rising from £27m to £140m for 2018. City analysts are expecting this trend to continue for the next two years. Net profit is expected to hit £172m in 2020, which implies the bank will report earnings per share of 65.8p for the year, giving a 2020 PE of 5.8.

In my opinion, this valuation severely undervalues the bank and its prospects. Considering OneSavings is one of the fastest growing banks in the UK, I think it deserves a premium valuation to the rest of the banking sector, which is currently dealing at a median P/E multiple of 7.6.

And as well as the discount valuation, the stock supports a dividend yield of 4.4%, which analysts believe will hit 5% in 2020 as the group increases its distribution to shareholders in line with earnings growth.

Boring but essential

TI Fluid Systems (LSE: TIFS) isn’t the most exciting business on the market, but when it comes to undervalued growth, this company looks to me to be a steal. The firm manufactures fluid storage, carrying and delivery systems primarily for vehicles, and over the past few years, revenues have increased at a compound annual rate of 7%.

Net profit has risen from just €13.4m in 2014 to €138m for 2018 and City analysts are expecting the group to report €151m of net profit in 2019. However, despite this explosive growth, shares in the company are currently dealing at what I believe to be a discount valuation of just 6.4 times forward earnings.

On top of this attractive multiple, the stock supports a dividend yield of 4.5%, which analysts believe will increase to 4.8% next year with scope to rise above 5% by 2021 as management continues to hike the dividend in line with earnings growth. The payout is covered 3.3 times by earnings per share, leaving plenty of room for further increases in the years ahead as well.

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Rupert Hargreaves owns no share 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.

With this being the case, I highly recommend ditching cash and investing your money in dividend stocks instead. Here are three FTSE 250 dividend stocks I’ve got my eye on today.

Property income

NewRiver Reit (LSE: NRR) saw its shares crash to a five-year low last year as investors rushed to dump any investments with significant exposure to the UK high street.

As one of the largest publicly traded retail and leisure property investors in London, NewRiver has more exposure to retail bankruptcies than most, but despite its retail exposure, the company is holding up relatively well.

It has relatively limited exposure to the most significant failures, such as Debenhams. Its total exposure to the struggling department store is just 0.1% of its gross rent roll, meaning that the company’s collapse is likely to have a minimal impact on the firm.

In January, it reported occupancy of its retail portfolio of 95.5% and pub occupancy of 98.9% — robust metrics considering the state of the high street.

These occupancy figures, coupled with the company’s low level of gearing (35% loan to value) lead me to conclude that investors can rely on NewRiver’s 9.4% dividend yield.

Market leader

Another FTSE 250 high-yield stock that’s on my radar is Hastings Group (LSE: HSTG).

Hastings is taking on the UK’s car insurance market by using technology to deliver better outcomes. This approach has helped the firm increase profits from £41m to £128m over the past six years. Revenues have risen from £252m to £814m over the same period.

Despite this impressive growth, the stock recently dived after the firm warned that profits growth would slow this year as claims inflation has been outpacing insurance premium growth. Following the update, analysts are now forecasting flat earnings for 2019, which is disappointing, but I see these as temporary headwinds.

The whole UK car insurance industry is facing the same issues, and this should mean premiums start to grow over the next 12 months to reflect the higher level of claims. With that in mind, I reckon now could be an excellent time to snap up the shares at a historically low valuation of just 9.6 times forward earnings. The dividend yield of 7.3% looks pretty safe as well.

Consumer retail

My last FTSE 250 income pick is Dixons Carphone (LSE: DC). Another company that has fallen out of favour with investors recently, Dixons is still the first point of call for many shoppers looking for electricals on the high street.

Analysts have pencilled in a decline in earnings of 23% for 2019, the second straight year of declining profits. However, stability is projected to return next year, and I think this could be a catalyst for the stock. Moreover, the shares are changing hands at just 7.3 times forward earnings, 37% below the sector average, implying there’s a near 40% upside for investors when confidence returns.

In addition to capital growth, there’s also the 5% dividend on offer, although, with the payout now covered 2.8 times by earnings per share, I think there’s a good chance the yield could jump back to its historic level of 7% during the next year or two.

The post I’d ditch a Cash ISA and buy these 7%+ yielding FTSE 250 dividend stocks appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

In amongst the stocks that deserve to be cheap, I often find a handful of shares that are unloved but good businesses. Potential bargains.

My latest trawl through the FTSE 250 mid-cap index has unearthed three dividend stocks I think offer good value for buyers at current levels.

A turnaround buy?

Medical technology company ConvaTec Group (LSE: CTEC) has been a disappointing performer since its 2016 flotation. Like many such firms, it floated at a demanding valuation that became unsustainable when growth rates disappointed.

Despite this, I think it’s fundamentally an attractive business. ConvaTec makes a range of medical products used in areas such as wound care, ostomy, incontinence and infusion. Many of the firm’s products are disposable or consumable, making them repeat buys for patients and hospitals.

A trading statement on Friday confirmed that growth remains challenging. Sales fell by 2% to $430.6m during the first quarter. However, full-year expectations are unchanged and ConvaTec expects to generate an adjusted operating profit margin of 18%-20% this year — a solid result.

The shares now trade on 12 times forecast earnings and offer a 3.5% dividend yield. With earnings backed by strong cash flows, I think ConvaTec offers decent value at this level.

Retail isn’t dead

Retailers with big high street chains are out of favour at the moment. But in my view there are likely to be some long-term winners in this sector.

One retailer I own myself is Dixons Carphone (LSE: DC). This firm is the UK’s largest retailer of home electricals, computers and mobile phones. It also has significant market share in Scandinavia and Greece.

Sales were steady over the peak Christmas period, and newish chief executive Alex Baldock is working hard to expand online and build a larger customer credit business — a key area of growth.

Consumer demand for the latest gear is still strong and Dixons Carphone’s scale means it can price competitively. In my view, sales are unlikely to collapse unless unemployment or interest rates rise. As far as I can see, there’s no sign of either at the moment.

With the stock trading on seven times forecast earnings and offering a 5.2% dividend yield, I rate this retailer as a buy.

This wheeler-dealer offers a 6% yield

City firm TP ICAP (LSE: TCAP) isn’t exactly a household name. But it is the world’s largest interdealer broker. What this means is that its teams of dealers act as middlemen, negotiating financial deals between clients such as investment banks and oil traders.

The rise of electronic trading has put pressure on this business model, which is changing to include more technology and data services. But TP ICAP’s scale and expansion into the oil market have helped the firm to adapt. Although market conditions can affect the group’s profits, this £1.6bn City firm ended last year with net cash of more than £600m.

The shares have halved in value since the start of 2018 and now trade on 9 times forecast earnings, with a 6% dividend yield. I think this is probably too cheap and would rate the shares as a buy.

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Roland Head owns shares of Dixons Carphone. 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.

Here, I’ll look at two high-yield stocks from my own portfolio which I believe offer good value at current levels.

Follow the cash

Investors tend to focus on company earnings. But ultimately what really matters is free cash flow. Without generating surplus cash from its operations, companies can’t pay dividends, expand or even survive.

A good example of this is FTSE 100 tobacco giant Imperial Brands (LSE: IMB). This stock’s forecast dividend yield of 7.8% might suggest the payout is unsustainable. But Imperial’s dividend is covered comfortably by the free cash flow from its operations, which is considerably higher than its accounting profits.

To cut a long story short, the reason for this relates to the way past acquisitions are accounted for. If we ignore this and focus on the cash being produced by the company’s current operations, the shares start to look cheap to me.

My sums show that last year Imperial generated free cash flow of £2.4bn, or 246p per share. That gives the stock a price/free cash flow ratio of 10.6, which is fairly low. From this surplus cash, 187.8p per share was paid out in dividends. The remainder was used to reduce net debt, which fell from £12.2bn to £11.5bn last year.

Admittedly, this level of borrowing is still quite high. But Imperial’s management has committed to reducing this figure and has the firepower to do so, thanks to the group’s strong cash generation.

In my view, the dividend looks fairly safe. With the shares trading on 9.6 times 2019 earnings forecasts and offering a 7.8% yield, I rate Imperial as a buy.

I’m backing this retailer

It’s no secret that many retailers are facing tough times at the moment. But I believe some of the UK’s big names will remain long-term winners. One such company, in my opinion, is Dixons Carphone (LSE: DC).

Like fashion firm Next, which I reviewed recently, I believe that the owner of Carphone Warehouse and Currys PC World is positioning itself to be a winner as the retail market shifts online.

Chief executive Alex Baldock is working to increase the group’s online trading, where the company says its markets share is less than that of its stores. Another area of opportunity is to extend its customer credit offering, which Baldock describes as a “big profitable growth opportunity.”

The firm’s stores may need to change, but I think they will remain useful as showrooms and as collection and drop-off points for online orders, returns and aftersales services.

Not as bad as it looks

Dixons’ share price has fallen by more than 50% over the last two years, leaving the stock trading on just 7 times forecast earnings. I don’t think that the outlook is as bad as these numbers suggest.

The group has the largest market share in the UK and is growing overseas. That means it’s present in all the places customers want to shop and has a strong online brand.

Sales are expected to be flat this year and analysts expect this year’s forecast dividend yield of 5.5% to be covered 2.5 times by 2019 earnings. This suggests another cut is unlikely. I remain a buyer at this level.

The post 2 bargain dividend stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Dixons Carphone and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

Simply put, if you sell more of something than anyone else, you can often gain an advantage through lower costs and other economies of scale.

The two companies I want to look at today are both the biggest players in their respective sectors in the UK. Here’s why I’ve been buying them both.

Earnings are growing at 20%

Supermarket group Tesco (LSE: TSCO) has a UK market share of about 28%. That makes it significantly larger than second-placed J Sainsbury (16%) and third-placed Asda (15%).

As if this advantage wasn’t enough, Tesco recent acquisition of wholesaler Booker has enabled the group to move aggressively into the wholesale and catering markets.

Tesco’s turnaround under chief executive Dave Lewis appears to have been very successful. The shares have risen by 7% over the last year and are up by 55% from their 2015 lows. It would be easy to say that the good news is in the price, but I’m not so sure.

The supermarket giant’s headline operating profit rose by 28.4% last year. Analysts’ forecasts suggest this momentum will be maintained in 2018/19 and 2019/20. Adjusted earnings per share are expected to rise by 17% during the current year, which ends on 24 February, and by 20% in 2019/20.

I’ve bought the shares

I think Tesco chairman John Allan and Lewis have done a very good job so far.

Net debt has fallen from nearly £10bn in 2015 to just £3.1bn today. Profit margins are rising steadily and the group’s operating margin reached 2.9% during the first half of the year. I see no reason to question Lewis’s guidance for a figure of 3.5-4% by 2019/20.

Broker forecasts put the shares on a price/earnings ratio of 13.1 for 2019/20, with a 3.4% dividend yield. In my view, this could be a profitable level to buy for long-term investors.

Supersize trend helps lift sales

My largest personal holding in the retail sector is Dixons Carphone (LSE: DC). The owner of Currys, PC World and Carphone Warehouse is in turnaround mode at the moment. But the firm’s stores and online presence still seem to be attracting plenty of shoppers.

During the all-important Christmas trading season, the group’s like-for-like (LFL) sales rose by 1%. UK electricals were 2% higher, with international sales up 5%. Apparently, “the supersizing trend” for larger televisions helped lift sales.

The only area of weakness was UK mobile, where LFL sales fell 7%. New boss Alex Baldock is already working on plans to reinvent the mobile business, which has been hit by the trend for SIM-only contracts and less frequent phone upgrades.

The shares look cheap to me

However, Baldock left guidance for a 2018/19 pre-tax profit of about £300m unchanged today. As a shareholder, I support his plans for selected store closures and a bigger focus on online sales.

With profit forecasts unchanged, Dixons Carphone shares look cheap to me, on a forecast price/earnings ratio of 7.2 for the current year. My sums suggest the dividend is set to fall to about 6.6p, which would give a 4.6% yield. I rate the shares as a buy.

The post The Tesco share price means it isn’t the only unstoppable retailer on my buy list appeared first on The Twelfth Magpie.

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Roland Head owns shares of Dixons Carphone and Tesco. 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.

The fear of a disorderly withdrawal from the European Union has already weighed heavily on the retail sector, for instance, with shock profit downgrades from the likes of ASOS, and news of retail sales plunging to decade-long lows, illustrating the sharp deterioration of shopper spending power and consumer confidence here in the UK.

More scary news

A recent report from Scottish Friendly also underlined the increasing strain on Britons’ wallets, a situation that threatens to keep demand for big-ticket items under the cosh.

Of the 2,000 respondents to the financial services giant’s survey on Brexit and its consequences on our finances, a whopping 37% said that they’re concerned about their debts, while 26% commented they now have less money left at the end of the month after shelling out on essentials.

 “This reflects the squeeze in living standards being felt by many households in a climate of weak wage growth and high inflation,” Scottish Friendly said. A prolonged Brexit drama threatens to keep the domestic economy pinned down, so there’s plenty of scope for consumer activity in the UK to keep on slumping, particularly so if that no-deal withdrawal transpires.

Dixons in danger

Dixons Carphone (LSE: DC) is a share that’s in severe danger of plunging in the months ahead, given that items with big price tags, such as fridges, televisions and higher-end smartphones, are the first things to fall in the event of severe economic slowdown.

It chimed in again last month with yet another worrying trading update. The electrical giant advised  it had swung to a pre-tax loss of £440m for the six months to October, from a profit of £51m a year earlier.

Consequently, the interim dividend was slashed by around a third to 2.25p per share and caused City brokers to cut their full-year forecasts to 8.4p per share for the period ending April. Sure, this figure still yields a huge 6.6%, but given Dixons’s increasingly-worrying profits outlook, and its escalating debt pile, I think an even bigger cut could materialise.

No deal could blast this share higher, though

I’d be much happier to buy into Fresnillo (LSE: FRES), a FTSE 100 share whose share price could well detonate in the event of a no-deal Brexit.

Demand for safe-haven assets like precious metals is going through the roof again as concerns over the political saga has spooked investors. Indeed, bullion retailer The Pure Gold Company said yesterday that gold bar and coin sales had jumped an incredible 324% in the week to date. That followed the correct assumption that Theresa May’s withdrawal agreement would be brutalised in the House of Commons, paving the way for further political chaos.

There’s clearly much more scope for more rampant bullion buying in the weeks and months ahead, a situation that would provide Fresnillo’s resurgent share price with even more fuel. Its forward dividend yield of 2.6% may be smaller, but I reckon the silver specialist is a much better buy than Dixons in the current climate.

The post Brexit watch: will this 6.5%+ yielder sink, or surge, in the event of no deal? appeared first on The Twelfth Magpie.

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