The Motley Fool

Have £1,000 to invest? 2 dividend stocks that could beat the FTSE 100

Today, I want to take a look at two UK-focused businesses I haven’t covered for at least a year. Both have made good progress during that time, but still look affordable.

Bowling a winner?

Last time I looked at 10-pin bowling operator Hollywood Bowl Group (LSE: BOWL), I was impressed. The UK’s largest operator of bowling alleys appeared to have a repeatable formula for growth and high profit margins.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

What’s changed? Nothing really, as its trading update published today suggests the picture remains attractive. Like-for-like sales rose by 1.8% during the year to 30 September. New sites lifted total sales by 5.8%.

These are good numbers, although it’s worth noting that sales growth appears to have slowed slightly this year. In 2016/17, like-for-like revenue rose by 3.5% and total revenue rose 8.8%.

Happily, profits are expected to be in line with market expectations. According to the company, pre-tax profit should be 10% higher, at about £23.2m. Broker forecasts suggest that this will translate into adjusted earnings of 12.4p per share, putting the stock on a P/E of about 16.8.

Keep buying?

During the first half of this year, the average customer spend per game rose by 5.5% to £9.20. The number of games played rose by 3.6% to 6.9m. This organic growth helped to increase the group’s operating margin from 22.2% to 23.6%.

High margins and low debt mean that cash generation is very strong. The company said today that it’s considering additional shareholder returns this year, on top of the regular dividend.

City analysts expect profits to continue rising next year. They’ve pencilled in earnings growth of 10%, which puts Hollywood Bowl on a 2018/19 forecast P/E of 15, with a 3.6% yield. I’d keep buying.

Tasty treat or yesterday’s news?

One company I’ve been less confident about is casual dining firm Restaurant Group (LSE: RTN), whose biggest business is “American Italian” family restaurant chain Frankie & Benny’s.

Restaurant Goup’s share price has fallen by another 21% since I last wrote about the shares in March 2017. At the time, I warned that it might still be too soon to buy. Is that still true today?

The firm’s latest results show that sales fell by 2.1% to £326m during the 26 weeks to 1 July. Adjusted pre-tax profit was 20% lower, at £20.1m.

Management says that trading was hit by cold weather at the start of the year, and by the World Cup in the early part of the summer. In support of this claim, like-for-like sales rose by 2.4% during the six weeks to 26 August.

One big risk

The main problem I can see is that Restaurant Group is cutting prices to boost sales, despite rising costs. The company’s numbers show that its adjusted operating margin fell from 7.9% during H1 2017, to 6.4% during the first half of this year. To put this into context, the group’s operating margin was 12.7% in 2014.

I suspect that this turnaround will succeed, but that the group’s profit margins may have to stay low to enable the group to compete against newer rivals.

Restaurant Group shares currently trade on a 2018 forecast price/earnings ratio of 14.8, with a prospective yield of 5.3%. I’d rate this as a potential turnaround buy although, personally, I remain cautious.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hollywood Bowl. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.