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These dirt-cheap dividend shares yield 7%+! Too good to miss or investment traps?

Royston Wild
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Is SCS Group (LSE: SCS) a top income share to consider buying today? Well on paper it certainly provides plenty for investors on a budget to get their teeth stuck into. The furniture retailer trades on a P/E ratio of 9.5 times for the current financial year (to July 2020) and carries a corresponding 7.4% dividend yield too.

There’s a reason why SCS is so cheap, however. City analysts expect earnings to fall 22% this year, but as financials this week showed, there’s plenty of scope for these already-insipid forecasts to be hacked down. In that latest statement, it said that like-for-like orders fell 7.1% in the 17 weeks to November 23, underlining the significant worsening in trading conditions of late. By comparison, two-year like-for-like orders were down a more modest 4%.

Ongoing economic and political uncertainties are continuing to impact consumer confidence and spending,” SCS said. And as Brexit uncertainty threatens to spill over into 2020 (and possibly beyond), it’d be foolish to expect business to pick up any time soon.

A better income stock?

I’d much rather plough my investment pennies into Bovis Homes Group (LSE: BVS), a share which remains a brilliant dividend bet despite signs of a cooling UK economy and severe Brexit-related tension.

There are a number of factors that continue to drive demand for new-builds in Britain, most notably rock-bottom interest rates, mortgage product wars across the country’s lenders, the Help to Buy purchase incentive scheme, and a lack of existing homes entering the market.

But one decisive factor that commands considerably fewer column inches is the contribution that the so-called Bank of Mum and Dad is having on helping first-time buyers leap onto the ladder. Indeed, according to the boffins at Legal & General, the average contribution made by parents to their children in order to buy property has risen to £24,100, up £6,000 from a year ago.

In total, Britain’s parents will have given a whopping £6.3bn this year, the insurance leviathan estimates, a £600m improvement from 2018 levels. To put this in context, Legal & General notes that “the figure effectively makes the Bank of Mum and Dad the 11th largest mortgage lender in the UK,” adding that “its contribution dwarfs government schemes to address the problem of housing affordability, such as Help to Buy.”

8.5% yields!

All things considered, then, it’s not a surprise that, despite the broader homes market facing its toughest period for decades, City analysts believe conditions remain supportive enough for profits for most of the homebuilders to keep chugging higher. Consensus suggests, for instance, that Bovis’s bottom line will swell 9% in 2020.

The days of rip-roaring earnings growth might be gone, sure, but these firms’ capacity to keep throwing out spectacular dividends remains intact. Thus, based on current estimates, Bovis carries a market-beating 8.5% yield for next year. Combine this with a rock-bottom forward P/E ratio of 10.4 times and I reckon the builder is a brilliant buy today.

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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.

Motley Fool UK 2019