One turnaround stock I'd sell to buy this unloved 6.5% yielder

Shares in UP Global Sourcing(LSE: UPGS) have crumbled over the past year as the company has issued one poor trading update after another.

Even though the stock only hit the market at the beginning of March 2017, it has been one of London's worst performing investments over this period, losing around 75% of its value since coming to market. And today, the shares trading down once again after the group issued yet another profit warning.

Struggling to remain relevant

For the six months ended at 31 January 2018, the supplier of consumer goods brands booked revenue of just £48.4m, down from last year's figure of £68.1m for the same period. While the company does say in its trading update that the first half of 2017 was unusually strong, it also goes on to say that 2018 is turning out to be an extremely tough year for ordering with many orders now falling into fiscal 2019 rather than the second half of 2018. Meanwhile, "retailer sentiment with regard to placing general merchandise orders in the short-term has not improved" and "lower volumes available to non-food suppliers, along with retailers' desire to minimise increases in retail prices, has created an even more competitive environment than normal." As a result of these issues, management now expects the firm to report underlying EBITDA of between £6m to £7m for fiscal 2018, which is significantly below current market expectations. Indeed, the market had been expecting the group to report a net profit of £6.1m for the year.

The one bright spot in the company's performance update is a commitment to its dividend yield of 12.5% although with trading performance deteriorating, it's difficult to see how management can accomplish this.

A better income buy

As it looks as if Up Global's problems aren't going to go away anytime soon, I would avoid this falling knife as there are plenty of other more attractive looking investments out there. One example is global mining giant Vedanta(LSE: VED).

Like UP Global, Vedanta has been buffeted by some adverse headwinds over the past few years. However, the company has been able to recover steadily from these issues and now looks well placed to grow with commodity prices rising and an improved balance sheet.

At the beginning of November, the company reported a near 40% jump in first-half earnings before interest tax depreciation and amortisation to $1.7bn thanks to higher commodity prices -- an impressive recovery from last year's loss of $5bn. As earnings grow, the group is also on track to reduce net debt to less than three times earnings from around $9bn.

As Vedanta is majority owned by its founders and current management, they are incentivised to make the business as profitable as possible and work for all investors. That's why I believe that the company is a fantastic income stock because its majority shareholders will not let the business go under as they have billions invested.

Right now, the shares support a dividend yield of 6.6% and the payout is just covered by earnings per share. Next year, however, payout cover is set to hit 1.7 times as City analysts expect earnings per share to jump 82% thanks to further operational improvements and commodity price gains.

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