One tasty dividend stock I'd buy along with Legal & General Group plc

I like to sink my teeth into a juicy dividend and frankly, which investor doesn't? The Restaurant Group(LSE: RTN) is currently serving up a juicy 5.5% yet has ruined the fun by combining this with a rotten share price performance. Things look better today though, with its share price jumping 10% this morning following publication of its interim results for the 26 weeks ended 2 July.

Frankie says

The Restaurant Group, owner of chains including Frankie and Benny's, Garfunkel's and Chiquito, has suffered a 20% drop in its share price over the past 12 months, and 50% over three years. That explains why investors were so relieved by today's rather mixed set of results, which revealed falling sales and a flat dividend. Clearly, the bar was set low.

Like-for-like sales fell 2.2%, with total sales down 1.9% on a 26-week comparable basis, or 7.1% on a statutory basis. Adjusted profit before tax fell from £36.6m to £25.5m, while statutory profit before tax plunged from £22.5m to £2.8m. Adjusted EBITDA and earnings per share (EPS) also fell.

In a funk

There was some good news, with continued strong free cash flow of £35.1m, similar to 2016's £35.8m. Net bank debt fell from £35.6m to £19.3m while exceptional charges dropped to £22.7m, less than half their previous level. The group said that trading in the last six weeks has been in line with expectations and it still expects to open a further 18 to 20 units in 2017.

Such thin gruel wouldn't merit such an enthusiastic response, but The Restaurant Group says 2017 is a transitional year, and it is working hard to build a leaner, faster, more focused company. The turnaround plan is showing signs of progress, with volumes improving, and an investment in price and quality showing results.

Food fight

The question is would you buy it at a forecast valuation of 14.6 times earnings? The dividend is certainly tempting, but today's interim payout was only maintained at 6.8p per share, and the yield is forecast to dip to 4.8%. Earnings per share are expected to drop 27% in 2017, then rise just 6% in 2018.

Investors are celebrating today, but I worry the dining-out market is saturated, especially with consumer spending under Brexit pressure. Maybe I am too much of a foodie, but aren't the Frankie and Benny's, Garfunkel's and Chiquito brands a little jaded?

Legally yours

I feel more positive about income hero Legal & General Group(LSE: LGEN) which I have argued for years is one of the most overlooked stocks on the FTSE 100. It currently trades at just 11.68 times earnings, despite its rampant yield of 5.5%, share price growth of 25% over the past 12 months, and a return of 105% over five years.

Legal & General recently posted a 43% rise in profits after tax to £952m as assets under management at its investment management arm rose 13% to £951bn, gross insurance premiums jumped 6% to £1.34bn, and its return on equity bounced from 20.6% to 26.7%. Its bulk annuity business is also growing strongly. Like every asset manager, L&G is exposed to a stock market crash, and recent double-digit EPS growth is expected to flatten out in 2017, but it still looks a strong buy to me.

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Harvey Jones 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.

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