Domino’s Pizza Group (LSE:DOM) and Greggs (LSE:GRG) are two of the most recognisable companies in the FTSE 250. Indeed, given their massive presence today, their stores can often be found near or next door to each other.
Both stocks are offering market-beating dividends. But how much income might shareholders expect moving forward? Here are the latest forecasts.
Big short interest
The first thing to note is that this pair have struggled during the latest chapter of the cost-of-living crisis. Domino’s, which operates the franchise brand in the UK and Ireland, is down 43% in two years while Greggs has slumped 41%.
Some of the key reasons include:
- Squeezed consumer spending.
- Higher input costs (food, energy, fuel, etc).
- Higher labour costs (wages/National Insurance)
- Slower sales growth.
- Under-pressure profits.
All of these risks are very active, of course. Food and energy costs are going up, which could have a double-whammy effect on the two firms, squeezing both customers’ budgets and profit margins.
Therefore, it’s no surprise to see that the stocks are among the most shorted in the UK. In other words, hedge funds and institutional traders are betting they have further to fall.
| Short interest | Number of funds short | |
| Greggs | 9.8% | 10 |
| Domino’s | 5.8% | 7 |
Short interest is the total number of a company’s shares that investors have borrowed and sold, but not yet bought back to close out their positions. Greggs is the fifth most-shorted UK stock today.
What are the latest forecasts?
One positive for new investors is that the struggling share prices have pushed up the dividend yields. Domino’s is sporting a 5.9% yield while Greggs’ is 4%. Both are higher than the FTSE 250, which is 3.3%.
Looking ahead, analysts are understandably not pencilling in bumper hikes in the payouts this year. The Domino’s dividend is expected to be flat at 11.3p per share, as is Greggs’ at 69p. Therefore, we get the same yields as before.
Turning to next year though, analysts are a little more optimistic. They see 12p for Domino’s and 70.3p, giving forward-looking yields of 6.3% and 4.1% respectively.
As mentioned though, the inflationary effects, including from the Iran war, cast a shadow over the UK economy and consumer spending. If things turn really ugly, both dividends could be reduced.
Which stock do I like better?
As challenging as things are, both firms recently put up resilient figures. Greggs’ total sales rose 7.5% to £800m in the first 19 weeks of the year, with like-for-like (LFL) sales at company-managed shops up 3.3% in the last 10 weeks.
Meanwhile, Domino’s Q1 LFL sales unexpectedly increased 4.5%, the pizza firm’s fastest growth in 11 quarters. Its new ‘Chick ‘N’ Dip’ offer’s been going down well and sales are expected to be strong over the summer during evening/night World Cup games.
Which stock do I prefer? I actually think both are worth considering for passive income, especially Domino’s with its 6.3% forward yield. If met, it would pay about £500 from an £8,000 investment.
But to my mind, Greggs has stronger long-term growth potential. It’s targeting 3,000+ shops (up from 2,740 today), including more locations in train stations and supermarkets. Greggs is also expanding into evening trade (after 4pm).
Should you invest £5,000 in Greggs Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
