Brexit watch: will this 6.5%+ yielder sink, or surge, in the event of no deal?

Pawns decorated with the UK and EU flags
Pawns decorated with the UK and EU flags

Away from the backbenches of Westminster, there’s very few people who believe that a no-deal Brexit wouldn’t have a catastrophic effect on the domestic economy.

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.

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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.