Restaurant operators in the United States have reported growth in same-store sales for 11 consecutive months. Industry growth has been robust, as the National Restaurant Association's Restaurant Performance Index (RPI)-tracking performance of key industry indicators such as same-store sales, jobs, and capital spending-points to an industry expansion for sixth consecutive month. The outlook is also rosy as restaurant operators expect continued improvement in business conditions in the coming period. The slowing labor market, however, is likely going to pose some near-term challenges to the upbeat expectations.
This year, stocks of major industry players, including Darden Restaurants (DRI), the owner of the famed Red Lobster and Olive Garden brands, and Brinker International (EAT), the parent company of Chili's and Maggiano's Little Italy restaurants, are up notably from the beginning of the year. The investor's love affair with Chipotle Mexican Grill (CMG) has boosted the stock almost 18% year-to-date on strong growth prospects, although, some market observers warn that the stock may be overvalued.
One the other hand, some key industry players with large international exposures, such as McDonald's Corp. (MCD), have seen their stock deep in red this year (see chart below), as investors recalibrate their near-term growth assumptions due to an expected weakness in Europe and Asia. YUM! Brands (YUM), the owner of Taco Bell, KFC, and Pizza Hut, has also seen its stock crushed recently due to an impending slowdown in China. Now, however, the pressures on the stocks of all restaurant operators have intensified as U.S. employment growth has dramatically slowed down.
While many international restaurant markets will see a continued weakening in the near-term period, the U.S. market is likely to show some resilience. However, as restaurant operators continue to express confidence in the near-term prospects for the industry, trends in the all-important labor market will have an increasing importance for the overall health of the restaurant industry in the United States. Below is a quick overview of some of the dividend-paying stocks in the restaurant industry.
Darden Restaurants is a restaurant operator with $6.4 billion in market capitalization and $7.5 billion in revenues. The company reported earnings per share (EPS) in the first quarter that beat analyst expectations by a penny. The restaurant owner is expected to expand its EPS 19.4% this year, and to average about 12.1% in EPS growth per year for the next five years. On the valuation basis, the company's P/E is below the industry's average but above the average for the company over the past five years.
The company has been paying a dividend since 1995. It has recorded a spectacular growth in dividends over the past five years, boosting payouts by an average of 31% per year. Currently, the company pays a dividend yield of 3.4%, much higher than the industry's paltry yield of 1.3% and the yield of 2.15% on the S&P500 index. The company's payout ratio is about 50%.
McDonald's Corp. is the world's largest fast-food hamburger restaurant chain in the world. It has market capitalization of $88 billion and annual revenues of $27 billion. Recently, the company's stock has succumbed to the pressures due to the company's large exposure to the European market. The company met the analyst EPS estimates in the first quarter and is expected to grow its EPS 15% this year. Analysts forecast that the rate of growth in the company's EPS will average 10% a year for the next five years. That rate is slower than the company's average growth rate of 18.3% per year over the past five years. McDonald's is valued below the industry and its own five-year P/E average.
The restaurant chain has been paying a dividend since 1976. The company has also increased its dividend payout by an average of 22% a year over the past five years. McDonald's currently pays a dividend yield of 3.2%, well above the industry and S&P500 yields. The company's payout ratio of 52% indicates that there is more room to boost dividends in the future.
Cracker Barrel Old Country Store, Inc. (CBRL) is store/restaurant operator with some 604 stores in 42 U.S. states. The company has market capitalization of $1.4 billion and annual revenues of $2.4 billion. It beat earnings estimates in its fiscal third quarter and is projected to boost its EPS by 15% this calendar year. In the next five years, analysts forecast that the store operator's EPS will increase 10.3%, on average, each year. Cracker Barrel's P/E is currently below the industry ratio, but above the company's five-year valuation.
The company has paid dividends since 1982. It has bolstered its dividends, on average, by 26% a year over the past five years, including this year's 60% hike in the dividend. Currently, Cracker Barrel pays a dividend yield of 2.7%, more than double that of the industry on average. The company's low payout ratio of 43% suggests there is more room to increase dividends in the future.
Brinker International operates its restaurants under the Chili's and Maggiano's Little Italy brand names. The company has a market capitalization of $2.3 billion and total annual revenues of $2.8 billion. It beat earnings estimates for its fiscal third quarter and is expected to grow its EPS by 27% this calendar year from 2011. Analysts forecast that its EPS will grow by an average rate of 13.7% a year for the next five years. As regards the company's valuation, Brinker International has a current P/E below the industry but well above its own five-year average ratio.
The company has been paying dividends since 2005. Including this year, its dividend has increased 13.7% a year, on average, over the past five years. Currently, the company has a dividend yield of 2.1%, slightly above the industry's and on par with that for the S&P500. Brinker International has a payout ratio of 36%, which suggests there is more room to hike dividends in the future.
YUM! Brands is a global restaurant operator under the brand names of Taco Bell, KFC, and Pizza Hut. It has a market capitalization of $29.4 billion and total revenues of $12.6 billion. The company reported first-quarter EPS that beat analyst estimates. Analyst project that the company will boost its EPS by 15.7% this year and, on average, by 13.3% a year in the next five years. The company's valuation suggests a slight overvaluation, given the high P/E relative to the industry and the company's five-year average comparators.
YUM! Brands has paid a dividend to investors since 2004. The company's dividend has increased by 16.7% a year over the past five years. Currently, the company's stock yields 1.8%, some 50 basis points above the yield on the industry but 35 basis points below the yield on the S&P500. YUM! Brands has a payout ratio of 36%, which suggests the company can likely continue to boost its dividends in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.