2 stocks offering outstanding value and great dividends

It’s not hard to find stocks paying a great dividend. Telstra Corporation Ltd (ASX: TLS) yields more than 5%, and it’s dividend is highly sustainable, as I wrote yesterday. Finding a stock with a great dividend that is also trading at a discount is a whole other story.

Here are two stocks that I think fit the bill today:

Retail Food Group Limited (ASX: RFG) the pizza, coffee, donuts, and bread franchisor extraordinaire looks to be trading on around 15-16 times its estimated underlying (excluding acquisition costs) full-year earnings, roughly in line with the ASX. However, after the group’s recent purchases there exist a number of synergies to be extracted as the company scales up its coffee production and integrates its new stores.

The company is commissioning three new coffee roasting facilities in financial year 2016, and also expects to commence initial production of 500,000kg of chocolate powder in addition to producing coffee machine capsules. This will result in a significant chunk of wholesale sales as well as branded coffee, and Retail Food’s coffee potential is now large enough to open some big doors internationally. Investors also stand to benefit from the continued roll-out of its ‘brand systems’ .i.e., franchises like Gloria Jean’s and Donut King.

With a 4.7% fully-franked dividend and great cash flows, it’s hard to go past Retail Food Group – which has also been given the tick of approval by Macquarie Securities.

G8 Education Ltd (ASX: GEM) was another stock identified by Macquarie as having reliable earnings and dividend potential, and my own look at the company also suggests its dividend is highly sustainable. It’s not as cheap as it was, but around 16 times earnings isn’t expensive either.

With G8 focused on consolidating the company after its recent acquisitions, my view is that it’s in a little bit of a holding pattern while management looks to improve the operating performance of its centres as well as handling some other admin work, like the recent debt buyback. They’re still acquiring centres however, with $50 million to $150 million in acquisitions planned for the year. Investors will want to look to see that ‘same-store sales’ (i.e., occupancy levels) rise in the upcoming report, but with less debt, business growth and strong cash flows G8 looks like decent value and it pays a market-beating quarterly dividend.

Along with G8 and Retail Foods, other great opportunities lie in wait...

These 3 "new breed" blue chips pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more - no credit card details or payment required!

What are you waiting for?

Motley Fool contributor Sean O'Neill owns shares of G8 Education Limited and Retail Food Group Limited. The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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