Not all restaurant stocks can be McDonald's (MCD). The Dow component is the world's largest fast-food franchise operator and few, if any, rivals can touch McDonalds' combination of capital appreciation and dividend growth. Following a two-for-one split in 1994, the company paid a quarterly dividend of three cents a share. Today, the McDonald's dividend is 70 cents a share. In the past five years, the stock has more than doubled, giving this old blue chip the feel of a legitimate growth name.
Year-to-date, McDonald's is down more than 3% as investors have taken profits following an impressive rally for the stock in 2010-2011. The company was trimming the year to date loss as it was gaining more than 1% on Friday's session following quarterly results that met expectations. The company also said that global comparable sales jumped 7.3% from a year ago, and that it expects April sales growth in April of 4%.
Also in the fast-food space, Yum Brands (YUM), the operator of the KFC, Pizza Hut and Taco Bell chains, is another name to consider. The stock has outperformed McDonald's over the past five years, jumping over 141% and Yum has an emerging markets kicker that few other U.S.-based casual dining and fast-food chains can lay claim to.
Last Wednesday, Kentucky-based Yum said its first-quarter global operating profit rose 15%, including 14% in China while same-store sales increased 5% in the U.S. and 14% in China. The near-term downside for the stock is that margins decreased in China and same-store sales slumped in India. After surging 6.1% in the past month alone, Yum looks overbought and it might be advantageous to wait for a pullback to support at $69 before establishing new positions.
Starbucks (SBUX) is another name that has been around for a while, but also one that has been rewarding investors with increased dividends and stellar capital appreciation. Starbucks, the world's largest coffeehouse operator, like Yum, is wildly popular in China. For long-term investors in both stocks, that's a great catalyst because the Chinese have shown a penchant for embracing Western restaurant brands. In the near-term, the China exposure could hamper both stocks amid China's economic woes.
Another restaurant industry growth star in recent years has been Chipotle Mexican Grill (CMG). In the case of Chipotle, the stock has surged 544% in the past five years. Apple (AAPL) has barely done better than that. Chipotle uses only high-quality ingredients, meaning it can be even more vulnerable to rising commodities prices than a larger chain such as McDonald's. However, its quarterly results this last Thursday showed the company able to top both earnings and revenues expectations. Management stated that it expects food inflation and comparable restaurant sales growth in the mid-single digits.
Chipotle offers another cautionary tale. Trading at 64 times trailing earnings, 40 times forward earnings and 13 times book value, this stock is by no means cheap. Some would argue it's downright expensive. Stocks can command lofty valuations for unlimited amounts of time, but any earnings misstep by Chipotle, no matter how slight, would like likely to a major sell-off in the shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.