Looking for income? One dividend stock I’d buy for my ISA and one I’d avoid

Both of these shares offer above-average dividends. But which should you load up on and which should you ignore?

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The growth of e-commerce has been one of the big stories of the new millennium and it’s not done booming just yet. I believe investing in Tritax Big Box REIT (LSE: BBOX) is one terrific way to ride this trend.

A report from We Are Social and Hootsuite shows that the internet’s role as a shopping destination continues to go from strength to strength. The UK e-commerce market swelled 8.5% in value in 2019 to total a whopping $86.5bn, their data shows. This is no wonder, as technological innovations and the accelerated demise of bricks-and-mortar retail encourages more and more shoppers online.

Tritax provides the big box logistics and warehousing spaces that are critical for e-commerce to take place. This integral role in the industry means that City analysts expect it to keep its broad record of annual earnings growth. They are predicting a 2% rise in the bottom line in 2020. And with that come expectations of more dividend growth, creating a massive 4.8% dividend yield.

Despite its high forward price-to-earnings ratio of 20.7 times, I reckon Tritax is fully deserving of this premium rating.

Emissions policy swerves again

I don’t believe that Vertu Motors (LSE: VTU) is a good selection for income hunters, however. That’s even though the car retailer also offers a bulky yield for the current year (to February 2020) of 4.7%.

New car sales in the UK have declined at a shocking rate in recent times. It reflects the Brexit uncertainty that’s causing both private and corporate buyers to splashing the cash on big-ticket items. It’s also a sign of buyer confusion over future emissions standards that are hammering sales of diesel cars in particular.

Government policy concerning the sale of petrol and diesel cars is as clear as mud. Earlier this month the government brought forward previous plans to outlaw new registrations of such vehicles, from 2040 to 2035. But today, transport secretary Grant Shapps said that the date could come in even sooner, in 2032.

Risky business

Pre-tax profits at Vertu fell 7% in the six months to August, latest financials showed. While like-for-like sales of used autos rose 1.6%, corresponding sales of new units plummeted 10.1%. No wonder City analysts expect earnings at the AIM-quoted company to fall yet again this year (a 1% drop is currently forecasted).

The uncertainty over both Brexit and upcoming emissions laws look set to keep consumers spooked for some time, then. Vertu’s low forward P/E ratio of 7.1 times and that bulging dividend yield might make it attractive on paper, but the threat of long-term damage to its business – particularly if the UK chooses to exit the European Union on a no-deal basis later this year, which would deal a massive blow to the car industry – makes this share far too risky right now. I’d avoid it like the plague.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT and Vertu Motors. 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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