It’s long been proven that stock markets offer the chance to make much, much bigger returns that those on offer from low-risk cash accounts. But not all of the UK’s listed dividend shares offer a path to riches, and I’m certainly not tempted to buy shares in The Restaurant Group (LSE: RTN).
At 4.3% for 2020, the dividend yield here wipes the floor with the sub-1.5% interest rate that the best-paying Cash ISAs offer up today. But this is built upon City expectations that earnings will leap by 14% in 2020 and therefore that dividends will leap higher. And I am not so confident that the Frankie & Benny’s and Chiquito owner will be able to meet these heady expectations.
The revenues renaissance that it enjoyed in the first part of 2020 has ground to a shocking halt more recently as diners have started to abandon its leisure brands (all of its standalone restaurants except Wagamama) yet again. In the first 34 weeks of this calendar year, like-for-like sales were up 3.7%, though in the final six weeks of this period, growth had slumped to just 0.2%.
In a rut
And recent industry figures suggest that things will remain difficult for The Restaurant Group. According to a recent report from Springboard, total footfall across the country’s bricks-and-mortar stores was down 10.6% year-on-year on Boxing Day. This was also the biggest decline Boxing Day decline since 2010.
News of plummeting footfall is particularly bad news for this restaurant operator as the majority of its eateries are located in and around retail parks and other shopper destinations. Leisure spend remains quite strong in the UK as Britons spend money on experiences and going out, rather than on physical objects. But clearly, The Restaurant Group isn’t benefitting from strong spending across the broader sector.
The FTSE 250 firm’s problems are threefold right now. Declining activity across the entire retail sector as political and economic uncertainty takes its toll; the steady growth of e-commerce, which is seeing more and more people stay at home to shop rather than go out to their local retail park or shopping centre; and a galaxy of competition in The Restaurant Group’s ‘casual dining’ sub-sector.
Reflecting these troubles, City analysts expect the firm to hack back the full-year dividend again in 2019, to 6p per share from 8.27p last year. This prediction is influenced by expectations that profits will sink 19% this year, not to mention the firm’s eye-popping debt pile (which, at £316.8m as of June was up more than £25m in six months).
Yet the number crunchers expect the full-year reward to rise to 6.8p per share next year, giving rise to that 4%-plus yield. For the reasons given, though, I have little faith that The Restaurant Group’s dividends will get back on the front foot any time soon. In fact, so risky is its profits outlook that I’d even prefer to park my money in one of those low-yielding Cash ISAs than buy any shares in this particular company! Its forward P/E ratio of 11.5 times might be cheap, but not cheap enough to encourage me to invest.
But I should say that while I think a Cash ISA would be preferable to RTN, I also think there are so many much more rewarding shares out there for me to pick from instead of a Cash ISA.
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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