Add Flavor to Your Portfolio With These Stocks
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Under the circumstances of low consumer confidence, customer allegiance threatens restaurants continually. According to the National Restaurant Association (NRA), “on average, repeat customers represent sales of 71 percent of quick service, 68 percent of fast casual, 64 of casual dining, 63 percent family dining and 51 percent of fine-dining restaurants.”
Source: National Restaurant Association, July 29, 2013
The chart shows the restaurant industry maintaining a 47% share of the food dollar and sales of $660.5 billion estimated for FY2013. According to the NRA, the restaurant industry receives $1.8 billion in sales on a typical day in 2013 and the industry has 4% of the U.S. gross domestic product. Even in this economic climate, some restaurants are still finding ways to thrive.
These restaurants are giving you many flavors
The Cheesecake Factory (NASDAQ: CAKE) reported Q2 2013 EPS of $0.54 against analysts' estimates of $0.57, missing by $0.03 the consensus at Thomson Reuters. I do not think this should count as a failure, since it is only a few cents away. The Cheesecake Factory still has many flavors to offer its investors. One flavor is that its revenue was up 3.4% year-over-year. The rest of the industry is declining while the Cheesecake Factory is improving.
Another flavor is that The Cheesecake Factory has scheduled a quarterly dividend of $0.14 per share for Aug. 20, 2013, only if you are a shareholder on Aug. 07, 2013. This is an enhancement from its previous quarterly dividend of $0.12 per share. This depicts a $0.56 annualized dividend and a dividend yield of 1.37%.
Not to be outdone, Brinker International (NYSE: EAT) is increasing earnings 15% annually and witnessed a 20% EPS increase since its prior year. Brinker is embarking on its third consecutive year of 20% EPS growth. Like The Cheesecake Factory, Brinker’s Board of Directors also scheduled a quarterly dividend of $0.20 per share in June 2013.
Brinker has remodeled a few of its restaurants to attract repetitive visits, with plans on remodeling many more in 2014. The restaurant remodels maybe the new normal for the restaurants that lasted in this economic uncertainty.
One of my favorite places to eat is the International Home of Pancakes (IHOP), but the parent company is having a little trouble. IHOP has so many different flavors of pancakes to choose from, I have not had a chance to taste them all yet. Have you tried all of the different pancakes at IHOP?
DineEquity (NYSE: DIN) is the worst of these restaurants with its EPS and revenue for Q2 2013 falling 1.13% and 31.07%, respectively, when compared to the same quarter one year ago. Like both The Cheesecake Factory and Brinker, DineEquity has a compelling dividend of $0.75 per share. The board gave DineEquity authorization to purchase $100 million worth of stock, which is a benefit to its shareholders at the time of repurchasing.
DineEquity’s problem is that revenue has been decreasing year-over-year. Unlike its competitors who are resilient in this economic scenario, DineEquity has been trying to improve its marketing plans to ramp up traffic.
To drive traffic, DineEquity has differentiated its brands through innovation and productive advertising, thoughtful service, and offering an impressive display of menu items to attract repetitive visits from customers. Besides minor enhancements DineEquity is attempting the remodeling of its Applebee’s franchises, with 100 restaurants already complete.
Expanding in flavor
Since January 2013, The Cheesecake Factory has opened two new restaurants, with plans of continuing expansion internationally as well as domestically. It has plans to open as many as 8 to 10 company-owned restaurants in FY13.
The Cheesecake Factory has entered into an agreement with a big restaurant operator in Latin America named Alsea, S.A.B. de C.V., to build and operate the Cheesecake Factory restaurants. Its agreement with Alsea is for the development of 12 restaurants at least, spanning eight years encircling Mexico and Chile with the probability of expanding the agreement to four more countries, namely Brazil, Colombia, Peru, and Argentina. The Cheesecake Factory plans to open three new restaurants, which includes two in new markets, Puerto Rico and Michigan, where the expectation for the new restaurants is already strong.
Brinker is trying to attempt a switch from franchise to company-owned restaurants by purchasing its franchises. A subsidiary of Brinker’s procured 11 current Chili's restaurants in the Alberta province, which already operated in the vicinity of $35 million in annual sales.
DineEquity is expecting Applebee’s and IHOP to open at least 40 and 50 restaurants, respectively, in FY2013. Applebee’s and IHOP have already opened 6 and 22 restaurants, respectively, this year. Both The Cheesecake Factory and Brinker are expanding operations internationally, while DineEquity is only growing domestically.
So many flavors to choose from
These stocks offer many flavors, for any kind of investor, whether you are a value investor, growth investor, income investor, or in the middle, there is a flavor for you. The collection of restaurants I placed before you each have compelling dividend yields, but you have to choose based on other facts, instead of just the dividends.
The American consumer has gone through rough times these past few years and so have businesses, but The Cheesecake Factory, Brinker, and DineEquity are expanding their operations and you might consider taking a look at them.
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