In this article, we will analyze the 7 Best Restaurant Dividend Stocks to Buy Now.
The restaurant industry is facing challenges this year due to shifting customer preferences. The 2020 pandemic had already prompted a move towards digital solutions, which were initially thought to be a long-term fix. However, the landscape continues to evolve, and now consumers are shifting their preferences again. Customers are being more cautious when dining out, opting for fewer items, cutting back on alcohol, and favoring value-menu options over premium ones. People are now prioritizing grocery shopping over dining at quick-service restaurants due to tighter budgets. As consumers become less inclined to spend extravagantly on eating out, quick-service restaurants are under pressure to maintain performance. To attract budget-conscious diners, brands are likely to increase promotional offers. Overall, same-store sales and customer traffic are declining as high prices and reduced savings take their toll on consumer spending. The Dow Jones U.S. Restaurants & Bars Index is down by nearly 3% this year so far.
High prices aren’t the only issue when it comes to dining out. Food delivery apps have reacted to new wage increase mandates for gig workers by raising their fees. This has led to frustrated customers, a drop in restaurant orders, and a decrease in delivery drivers. A Wall Street Journal report highlights that in cities like Seattle, Uber Eats orders fell by 45% In the first quarter of 2024 compared to the same time last year due to these higher fees. This decline in consumer orders means restaurants have fewer deliveries to make, and drivers have fewer jobs, impacting the entire delivery ecosystem. Experts believe it’s too soon to determine the long-term effects of the wage increase on fast-food restaurants and whether it will result in significant layoffs or closures. Historically, wage hikes haven’t always led to job losses. For instance, a University of California, Berkeley study found that when California and New York raised their minimum wage to $15, nearly doubling the federal rate of $7.25 per hour, job growth continued.
Despite challenges, the restaurant industry isn’t entirely faltering this year. RSM Global reports that, while demand might be softer than expected, retail sales are still growing, driven by increased real income and stronger consumer sentiment. The report further mentioned that in 2024, the restaurant sector is expected to see annual sales growth of 2% to 3%, in line with the inflation rate. To succeed in this competitive environment, businesses need to focus on automation and maintaining robust operating margins for scalability. Integrating smart technology is crucial to meet rising consumer expectations and boost operational efficiency. Retailers and restaurants should strategically invest in these areas to capitalize on growing consumer spending.
Given the optimistic forecast and shifting investment trends, investing in restaurant stocks, particularly those offering dividends, seems like a prudent choice. The consumer discretionary sector, which includes restaurants, saw its annual dividends increase to $106.8 billion in 2023, up from $84.6 billion in 2022, according to a report by Janus Henderson. In this article, we will take a look at some of the best dividend stocks from the restaurant industry.
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Our Methodology:
For this article, we sifted through ETFs and screeners to identify dividend-paying companies that operate in the restaurant industry. These companies typically own and operate various types of restaurants, including fast-food chains, casual dining establishments, fine-dining restaurants, and quick-service restaurants. After careful consideration, we selected 10 stocks from this list based on their popularity among hedge fund investors. We then arranged these stocks in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
7 Best Restaurant Dividend Stocks to Buy
7. Jack in the Box Inc. (NASDAQ:JACK)
Number of Hedge Fund Holders: 21
Jack in the Box Inc. (NASDAQ:JACK) is a California-based fast-food restaurant chain that follows the franchise business model and is known for its diverse menu. In its fiscal Q2 2024 earnings, the company’s results were affected by changes in consumer behavior and an unforeseen delay in the launch of the Smashed Jack, but sales have seen improvements since its debut in mid-March. The company has developed a solid plan to boost same-store sales with an aggressive marketing schedule, new limited-time offers, and an expanded value menu for the rest of 2024.
In addition to this, Jack in the Box Inc. (NASDAQ:JACK) is also showing strong confidence in the long-term strategy to drive sales, enhance margins, and open new units and markets. Franchisees are also supportive, continuing to develop the pipeline and invest in brand expansion. In the most recent quarter, the company secured franchise development agreements to enter Tallahassee and expand in Orlando. It now has 31 restaurant commitments in Florida.
Since the start of 2024, Jack in the Box Inc. (NASDAQ:JACK) has fallen by over 36% as the fast food sector has encountered several challenges, including higher labor and food costs, along with recent spending declines among lower-income consumers. The intense competition from other fast food chains, many of which are offering more value deals, has also impacted the industry. Consequently, JACK has dropped significantly, falling to half of its peak value from 2023 of around $98 per share.
Jack in the Box Inc. (NASDAQ:JACK) is one of the best dividend stocks from the restaurant industry as the company has been paying regular dividends to shareholders since 2014. Its future dividends seem safe as the company has a payout ratio of 30%. It offers a quarterly dividend of $0.44 per share and has a dividend yield of 3.32%, as of August 6.
At the end of Q1 2024, 21 hedge funds in Insider Monkey’s database reported having stakes in Jack in the Box Inc. (NASDAQ:JACK), which remained unchanged from the previous quarter. These stakes have a total value of over $103.2 million. Among these hedge funds, Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder in Q1.
6. Restaurant Brands International Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 22
Restaurant Brands International Inc. (NYSE:QSR) is a multinational fast food holding company with prominent subsidiaries, such as Tim Hortons, Popeyes, and Burger King. The company has been rapidly expanding its portfolio through ongoing acquisitions. In late 2021, it purchased Firehouse Subs, which has significantly boosted its sales. In Q1 2024, Firehouse Subs generated $301 million in revenues, up from $289 million in the same period last year. Recently, in May, the company finalized its acquisition of Carrols Restaurant Group Inc., its largest Burger King franchisee in the U.S., for approximately $1 billion. Additionally, the company plans to invest another $500 million to renovate 600 Carrols locations. In the first quarter of 2024, the company reported a 4.6% YoY growth in its consolidated comparable sales.
In addition to its robust earnings, Restaurant Brands International Inc. (NYSE:QSR) attracts investors with its impressive portfolio of restaurants, which tends to be appealing during market downturns. This was evident during the 2020 pandemic, when most of its restaurants transitioned to online orders, ensuring steady revenues and better market navigation. Between June 2020 and June 2021, QSR saw a gain of over 25%, highlighting its resilience in challenging market conditions.
From a dividend perspective also, Restaurant Brands International Inc. (NYSE:QSR) presents an attractive opportunity. In the first quarter of 2024, the company reported an operating cash flow of $148 million, up from $95 million in the prior year period. Its free cash flow also jumped YoY to $122 million, from $77 million. On June 20, the company declared a quarterly dividend of $0.58 per share, which was in line with its previous dividend. Overall, it has raised its payouts for eight consecutive years, which makes QSR one of the best dividend stocks on our list. As of August 6, the stock has a dividend yield of 3.26%.
As of the close of Q1 2024, 22 hedge funds tracked by Insider Monkey reported having stakes in Restaurant Brands International Inc. (NYSE:QSR), down from 27 in the preceding quarter. The consolidated value of these stakes is over $2.2 billion.