The Restaurant Group (LSE: RTN) is a share boasting a forward dividend yield north of 5%. A predicted reward of 6.6p per share, in fact, yields an eye-catching 5.2%.
I’m going to come straight out and say it, though, I wouldn’t touch the eateries giant with a bargepole right now. The FTSE 250 firm’s strategy to turn around falling customer interest in the likes of Frankie & Benny’s, by rejigging the menu and making its dishes more cost-competitive, continues to fail and like-for-like revenues slipped a further 2% in 2018.
Sales are unlikely to get any better any time soon, either, as fading consumer spending power worsens and an ultra-competitive marketplace persists. Joining the list of mid-tier culinary casualties this week, and underlining the challenging trading environment, were Giraffe and Ed’s Easy Diner as they declared plans to close 27 restaurants between them.
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It’s not a shock that City analysts are predicting that The Restaurant Group will endure another profits reversal in 2019, and will consequently be forced to cut the dividend again (the Square Mile is already tipping a payout reduction for 2018 when it announces full-year results on March 15).
Turn your nose up!
There’s plenty that the restaurant chain has to prove beyond its near-term pressures, particularly concerning the steady growth in online shopping that’s affecting footfall in its retail park-based restaurants and threatening to keep profits under pressure in the years ahead. It’s also facing a challenge to prove the doubters wrong over whether it can make its takeover of Asian food franchise Wagamama back in November work.
The task has been made all the more difficult following the bombshell resignation announcement of chief executive Andy McCue last month. He will step aside because of “extenuating personal circumstances” once a successor is found and the timing could hardly be worse for a company in desperate need of stability to help it pull through the current crisis.
For all of these reasons I’m not tempted to invest despite its monster dividend yield and its ultra-low forward P/E ratio of 9.9 times. The Restaurant Group is a share whose market value has shrunk by more than three-quarters over the past three years and I see plenty of reason to expect it to keep reversing.
Gorgeous Georgia
If you’re looking for a big-yielding dividend share to make you rich by retirement then Bank of Georgia Group (LSE: BGEO) would be a much better bet, in my opinion.
Last year the FTSE 250 financial colossus saw pre-tax profit (excluding one-off items) spring 23% higher from 2017 levels, to 492.6m Georgian Lari, with strong growth being reported across both its retail and corporate banking loan books as well as strong growth in assets under administration at its investment banking division.
The Georgian economy is going from strength to strength — last year it grew by an impressive 4.8% year-on-year — and so the City expects Bank of Georgia’s profits to keep growing at a healthy rate in the medium term at least. And this leads to predictions of more bulky dividends, an 89.6p per share forecast payout yielding a giant 5.3%. Throw its low valuation into the equation as well, a prospective P/E multiple of just 5.8 times, and I think the bank is a brilliant income share to load up on today.
