Food Chains That Will Challenge the McDonald’s Dividend (DRI, EAT, MCD, PFCB, YUM, BAGL)

The world of casual dining and dining is one which has survived bad times and thrived in good times.  It turns out that some of the casual dining segment, particularly the fast food segment, offers investors a defensive stock strategy.  After all, people have to eat and this offers value to consumers.

It is widely believed that McDonald’s Corporation (NYSE: MCD) is the king of the food sector when it comes to being defensive because of its product mix and because of its high dividend.  There are actually many other restaurant chains, some fast food and some casual dining to upscale dining, that offer close to the same sort of dividend for investors.

Our dividend screen identified the shares of six companies.  Among these companies, the highest dividend is almost 3.5%.  The lowest yielding restaurant company pays a dividend exceeding 1.8%.  Returns of equity (ROE) range from an attractive 16.7% to an eye-catching high exceeding 83%.  Except where otherwise noted, the source for all performance and financial data is Finviz.com.

Listed in alphabetical order of their ticker symbols the six restaurant chains are: Darden Restaurants, Inc. (NYSE: DRI), Brinker International Inc. (NYSE: EAT), McDonald’s Corp. (NYSE: MCD), P.F. Chang’s China Bistro, Inc. (NASDAQ: PFCB), Yum! Brands, Inc. (NYSE: YUM), and Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL).

Darden Restaurants, Inc. (NYSE: DRI) pays a 2.7% dividend with an earnings to dividend payout ratio of 36.7%. The company’s return of equity (ROE) is an attractive 24%. Its forward PE of 12.3 is the lowest among these six restaurant chains.  In Thursday trading, Darden’s shares closed at $46.86, down 0.32%.  Its 52-week price range is $36.27 to $52.12.   Red Lobster and Olive Garden are two of the brands here that have helped lead the charge.

Brinker International Inc.  (NYSE: EAT) pays a 2.4% dividend with an earnings payout ratio of 35.1%.  Its forward PE is 13.1 and its ROE is nearly 25%.   Brinker International shares closed at $23.20 on Thursday, down 0.56%. Its 52-week range is $13.69 to $25.96. Having Chili’s and Maggiano’s pays off and there appears to be enough earnings power here for that dividend to go higher.

McDonald’s Corp. (NYSE: MCD)  is the king of the dividends.  Its dividend yield is roughly 3.0% and it has an earnings to dividend payout ratio of about 48%.  The world-leading hamburger flipper has a forward PE of 14.6.  Its 35% ROE is second highest in this group of restaurant chains.  McDonald’s stock closed at $81.81 in Thursday trading, up 0.7%.  Its 52-week price range 52-week range is $63.32 to $82.47.

P.F. Chang’s China Bistro, Inc. (NASDAQ: PFCB) pays a 2.1% dividend with an earnings payout ratio of just lower than 40%. The company’s price to free cash flow is an attractive 11.8, nearly the lowest among this group of companies.  In Thursday trading, P.F. Chang closed at $39.30, up 0.56%.  Its 52-week trading range is $36.55 to $52.77. This one has even stated a commitment to paying out about 40% of its income in the form of dividends, and it is also one of the companies which we have considered being part of a “private equity wish list” if its shares get cheap enough.  The P.F. Chang’s brand may have mostly peaked in its store count, but there are still many growth opportunities for its Pei Wei brand.

Yum! Brands, Inc. (NYSE: YUM) pays a 1.8% dividend, the lowest among these six companies.   Its earnings to dividend payout ratio is 38.6%.  Yum Brands’ ROE exceeds 80%, which is easily the best among the restaurant chains discussed here.  Be advised, any time we see such a standout figure we always want to refer back that this number is provided by an outside source and Yum! would have made the screen even if that ROE was half.  The company’s forward PE is 17.0, the highest in the group.

Yum Brands’ shares closed at $54.43 in Thursday trading, up 0.7%.  The company’s 52-week range $37.48 to $56.98.  What is interesting about Yum! is not the United States.  It is China, and the company is the king of American food chains when it comes to China.  If China can keep up with its earnings and growth contributions, then Yum! is going to be able to significantly juice up its dividend. Its key brands leading the company are KFC, Pizza Hut, and Taco Bell, but it also has A&W and Long John Silver’s.

Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL) leads all six restaurant companies in three noteworthy financial measures: dividend yield; earnings to dividend payout ratio; and, price to free cash flow per share.  The company pays a 3.4% dividend.  Its earnings to dividend payout ratio is a modest 35%. At 10.6, the company boasts a lowest price to free cash flow per share.  Einstein’s shares closed Thursday at $14.89, up 3.2%.  The company’s 52-week trading range is $9.35 to $16.90.

Dividends are important for most investors.  McDonald’s undertook a strong dividend policy years ago and its shares have enjoyed growth regardless of the economy.  Now it turns out that other food serving destinations are chasing McDonald’s for its pro-shareholder strategy.

Some will still lag, but some have the recipe which can allow for a higher dividend payout than the Golden Arches.  Einstein Noah is already ahead of McDonald’s on that front.

Jon Ogg and Jim Berdou