The Best Restaurant Stocks for Dividend Investors


Restaurant stocks can be great investments for dividend investors. In fact, the average American eats at a restaurant 5.8 times a week (which equals an average of $2,600 annually, per person). However, the restaurant space is very competitive, and soaring profits can quickly turn into a slump. Think about Ruby Tuesday (NYSE: RT), for example.  The company paid a healthy dividend yield for years, but terminated its payout in 2006. Since then, the stock’s share price has dropped from $27 to a penny stock worth less than $2. Choosing the right stock is important, because there are plenty of good opportunities for profits. In the last twelve months, the PowerShares Dynamic Food & Beverage ETF (NYSE: PBJ) is up 10%. The average dividend yield in the industry is 2.3%, which is in-line with the average of the S&P 500 index.

There may also be some optimism for restaurant stocks with President Trump’s new tax proposal, which would reduce the tax rates of these companies. Many of these restaurant companies have a tax rate over 30%, while Trump is proposing a rate of 15-20%.

Restaurant stocks have a lot of potential, but it is important to note that cyclical stocks can be deeply impacted by swings in the economy. Additionally, for these companies, comparable sales (comps) are one of the most important factors for investors and analysts to consider.

DineEquity Inc (NYSE: DIN) is a Glendale, CA-based restaurant company, best known for owning franchises of popular chains, Applebees and IHOP. The stock is down nearly 20% in the last year, and hit its 52-week low in January after reports of insider selling. Shares of DineEquity are currently trading at 9 times earnings.

The combination of the drop in share price and the company’s dividend hike in 5%, has boosted DineEquity’s dividend yield to over 5%. If the share price has bottomed out and continues to rise, this could be a great pick for dividend investors. However, the company did halt its dividend payout in 2008, but reinstated its payout again in 2013. DineEquity has been boosting its dividend annually since 2013.

McDonald’s Corporation (NYSE: MCD) is an Illinois-based fast food giant that served its first burger in 1940 and has sold more than 99 million since. In the last year, shares are up about 7%. While this isn’t an amazing jump (compared to the S&P 500), investors don’t expect big jumps from McDonald’s. On the flipside, investors don’t expect shares to take a dramatic plunge during a market downturn, either. Shares of McDonald’s are currently trading at 19 times its future earnings estimates.

McDonald’s is well known for its dividend. Just ask a handful of investors for an example of a dividend paying stock – I bet McDonald’s is mentioned. The stock offers a 3% yield and has been raising its dividend annually for over 40 years.

Darden Restaurants, Inc. (NYSE: DRI) is a Orlando-based full service restaurant company that has several chains in its portfolio including Olive Garden, LongHorn Steakhouse, Yard House, and The Capital Grille. The stock soared 30% in the last year, as most of its brands saw positive performance. Darden eliminated Red Lobster from its roster in 2014, which initially led to a jump in its share price. Currently, Darden is trading at 17.5 times its future earnings estimates.

As for its dividend, Darden offers a yield of about 3%. It currently pays a $0.56 quarterly dividend, but investors did see the company cut its dividend from $0.55 to $0.50 in 2015. Nevertheless, the stock has offered impressive share performance with a solid dividend yield.

Brinker International, Inc. (NYSE: EAT) is the Dallas-based owner of Chili’s Grill & Bar and Maggiano’s Little Italy. The company’s share price has declined about 5% in the last twelve months due to disappointing comparable sales. Its outlook for this year doesn’t have investors racing to buy, either. Some analysts expect the stock to fall by more than 10% this year. The stock currently trades at 13 times its future earnings estimates.

The company does offer a great dividend opportunity, at around 3%. Over the last six years, Brinker has increased its dividend annually, despite declining sales.

Yum! Brands, Inc. (NYSE: YUM) is a Kentucky-based restaurant company that owns popular fast food chains, KFC, Pizza Hut, and Taco Bell. The company reported earnings yesterday, posting profits above analysts’ estimates and an overall strong quarter. However, it is concerning that its Pizza Hut segment fell 25%. Currently, the stock is trading at 22 times earnings.  The company also spun off Yum China, which now trades under YUMC, in late 2016.

Yum Brands offers a dividend yield of around 1.75%. The company has been increasing its payout by about 10% annually. Over the last year, the stock is up around 2%.

Dunkin Brands Group Inc (NYSE: DNKN) is the Massachusetts-based owner and operating of Dunkin’ Donuts and Baskin-Robbins brands. The company reported earnings last week, posting higher than expected earnings, which reflected positively on its share price. Additionally, Dunkin Brands reported comparable sales growth and a positive outlook for 2017. The stock is currently trading at 21 times earnings. The stock is up 31% in the last year.

The company offers a solid dividend payout, too, at around 2.4%. In early February, the company reported its most recent dividend increase to $0.3225 from $0.30. It has been committed to increasing its dividend since it was initiated in 2012.

Cracker Barrel Old Country Store, Inc. (NYSE: CBRL) is a Tennessee-based restaurant and retail company. The stock has been soaring since the election, and is up about 26% in the last twelve month. Currently, Cracker Barrel trades at 19 times its future earnings estimates.

The stock currently offers dividend investors a yield of about 2.75%.  It has committed to increasing its dividend annually, and even paid shareholders a special dividend of $3.25 in 2016.

Bob Evans Farms Inc (NYSE: BOBE) is the Ohio-based owner of Bob Evans restaurants. The company also is a producer of consumer packaged goods with sausage and pork products. Last month, the company announced its plan to separate its businesses (packaged goods and restaurants). The news sent the stock soaring, as Bob Evans noted that it had reached a deal to sell its restaurants to a private equity firm for $565 million (which was about 60% of the total company value). The stock is up 45% in the last twelve months and is currently trading at 23 times earnings.

The company has a dividend yield of approximately 2.4%. It had been increasing its dividend annually since 2008, but maintained its current payout during its December payout.

Ark Restaurants Corp (NYSE: ARKR) is a New York City-based restaurant company that owns and operates several bars, catering solutions, and fast food restaurants. Ark is a smaller company, with a market value around $85 million, and often falls behind the scenes, as its peers own more widely known restaurants. However, Ark is up 24% in the last year and is a great dividend opportunity. The stock is currently trading at 10 times its future earnings estimates.

The stock offers a dividend yield close to 4%, which is fantastic compared to its peers. It has held its $0.25 quarterly payout steady since 2015.

Texas Roadhouse Inc (NYSE: TXRH) is a Kentucky-based restaurant company that owns and operates more than 400 Texas Roadhouse locations. The company is another restaurant company that dividend investors often look past, but the stock is up over 30% in the last year. It is currently trading at 21 times its future earnings estimates.

It’s dividend yield is low compared to its peers, at around 1.6%. However, TXRH has been increasing its payout every year since 2011.

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