Now that the UK faces Brexit, the pressure on shoppers is even higher. Although Next has a relatively high yield when special dividends are included, could another 5%+ yielding share be worth buying instead?

A difficult outlook

Perhaps the biggest problem facing Next is higher inflation. It is now above and beyond the rate of wage growth in the UK. Historically, this has meant that consumer spending comes under at least some degree of pressure. For example, during the credit crunch and in its aftermath, shoppers switched to lower-cost alternatives for a range of products and services. While Next has a relatively high degree of customer loyalty, it is not immune to such a shift in consumer spending patterns.

Dividend potential

Next has a dividend yield of around 3.6% at the present time. While this is less than the FTSE 100’s dividend yield of 3.8%, the company is in the midst of paying a special dividend of 45p per quarter. It has made three such payments, with a fourth expected to be paid in November. Including the 45p special dividend in its yield and annualising it means that the company has an overall yield of around 7.7%. This is one of the highest payouts in the index. However, there are no guarantees that special dividends will continue beyond the end of the current year.

Despite this, the company continues to have income appeal. Its ordinary dividend accounts for just 40% of profit, so the chances of further special dividends seem likely. In addition, it trades on a price-to-earnings (P/E) ratio of just 11, which is historically low for the stock. This suggests that the market has priced-in potential difficulties in the retail sector and has applied a wide margin of safety. This could present a buying opportunity and, while it may not be one of the most resilient dividend stocks around, its stunning yield appears to more than offset this risk.

Upbeat outlook

Also offering impressive income prospects is property investment company Kennedy Wilson Europe Real Estate (LSE: KWE). It invests in a range of property across the UK, Ireland, Spain and Italy, and released half-year results on Friday. Ahead of a merger with KWE, it was able to deliver £4.1m of incremental annualised income through a number of new leasing wins. Its liquidity levels remain high and it is on track to meet its £150m disposal target.

In terms of dividends, the company currently yields around 5% from a payout which is covered 1.2 times by profit. This suggests that there is scope for dividend growth potential – especially since monetary policy across Europe is likely to remain loose over the medium term. This should help to support property prices and allow Kennedy Wilson Europe Real Estate to generate an impressive level of financial performance.

The post Should you give up on Next plc and buy this 5%+ yielder instead? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any 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.

Kennedy Wilson’s performance in its third quarter suggests that confidence in the UK economy remains high. It has delivered strong operational performance in the period and is ahead of its business plan when it comes to asset disposals. It continues to beat valuation estimates on its properties, while it remains confident in its future outlook. Evidence of this can be seen in the quarterly dividend paid of 12p per share, which puts Kennedy Wilson on a yield of around 4.7%.

However, it may be too soon to assume that Brexit won’t negatively impact UK property prices. After all, politicians in the UK are still arguing about whether the government has the power to invoke Article 50 of the Lisbon Treaty. Therefore, the negotiating phase of the UK leaving the EU hasn’t even started. As a result, the outlook for the UK property market could easily deteriorate if negotiations with the EU seem to be challenging over the next few years.

Despite this, Kennedy Wilson has a bright long-term future. It invests in a range of geographies and this significantly reduces its risk profile. If UK property performance is negatively impacted by Brexit, Kennedy Wilson may not see its share price decline significantly since it has investments in other regions that could pick up the slack. And with it trading on a price-to-earnings growth (PEG) ratio of 0.3 thanks in part to earnings growth forecasts of 20% this year and 45% next year, Kennedy Wilson has a sufficiently wide margin of safety to merit investment at the present time.

Back the housing sector?

Of course, for investors willing to take a risk on the UK property market, prime residential housebuilder Berkeley (LSE: BKG) remains a sound long-term buy. It should benefit from a weaker pound since a large proportion of its sales are generated from foreign buyers. This is a reason why Berkeley’s bottom line is due to rise by 45% in the current year. This puts it on a PEG ratio of just 0.1, which indicates that even if the UK housing market undergoes a correction due to Brexit, Berkeley may still perform relatively well.

Berkeley also offers an excellent income outlook. It’s due to pay out £2 per share in each of the next five years. This puts it on an annual yield of 8.5%, which is among the highest yields in the FTSE 350. And with dividends being covered 1.9 times by profit, they could rise over the long run. As such, while there could yet be a challenging period for property in the years ahead, Berkeley and Kennedy Wilson remain sound long-term buys.

The post Property crash? What property crash? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens owns shares of Berkeley Group Holdings. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.