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.
5. Yum China Holdings, Inc. (NYSE:YUMC)
Number of Hedge Fund Holders: 28
Yum China Holdings, Inc. (NYSE:YUMC) is a Shanghai-based fast-food restaurant holding company that operates and manages several well-known brands. the stock has dropped more than 21% year-to-date, largely due to challenges in China, such as shifting consumer behaviors and increased competition. These factors have affected the company’s performance and investor sentiment even throughout the past year. However, on August 6, YUMC surged by nearly 12%, after reporting better-than-expected earnings in the second quarter of 2024. The company posted revenue of $2.68 billion, which showed a 1% growth from the same period last year. The quarter also remained positive for the company’s expansion efforts. By June 30, 2024, the total number of stores had reached 15,423, with 10,931 KFC locations and 3,504 Pizza Hut outlets. During the quarter, the company added a net total of 401 new stores, of which 99, or 25%, were opened by franchisees.
Baron Funds also highlighted the reasons for Yum China Holdings, Inc. (NYSE:YUMC)’s decline in its Q4 2023 investor letter. Here is what the firm has to say:
“Yum China Holdings, Inc. (NYSE:YUMC) is the master franchisee for the YUM brands in China and operator of the KFC and Pizza Hut restaurant networks in that market. Shares detracted after the company reported a negative surprise on margins for the third quarter and hinted that increased competition and cost-consciousness among Chinese consumers could cause that margin compression to continue through the first quarter of 2024. Although in-year margins are volatile at Yum China, its pristine balance sheet, cumulative investments in technology, unmatched scale, and successful pivot to higher-ROI, smaller footprint stores in recent years should drive continued 8% to 10% store growth at attractive returns. Further, given its strong free-cash-flow generation and strong balance sheet, we believe the company is likely to offer capital returns to shareholders in excess of earnings over the next several years. We remain shareholders.”
Yum China Holdings, Inc. (NYSE:YUMC) is a strong dividend payer with a solid amount of cash available on its balance sheet. Its trailing twelve-month operating cash flow comes in at $1.4 billion and levered free cash flow amounts to over $888 million. As of the end of June 2024, it has over $1 billion available in cash and cash equivalents. Its strong cash position could be seen from its $249 million return to shareholders through dividends and share repurchases. Yum China Holdings, Inc. (NYSE:YUMC) started paying dividends in 2017 and has paid regular dividends to shareholders since then, which makes it one of the best dividend stocks in the restaurant sector. The company pays a quarterly dividend of $0.16 per share for a dividend yield of 1.92%, as of August 6.
The number of hedge funds tracked by Insider Monkey owning stakes in Yum China Holdings, Inc. (NYSE:YUMC) jumped to 28 in Q1 2024, from 22 in the previous quarter. These stakes are valued at roughly $818 million in total. With over 12.2 million shares, GuardCap Asset Management was the company’s leading stakeholder in Q1.
4. Darden Restaurants, Inc. (NYSE:DRI)
Number of Hedge Fund Holders: 32
Darden Restaurants, Inc. (NYSE:DRI) is an American multi-brand restaurant company that has operations in over 1800 locations. The company has attracted attention due to the struggles of its largest brand, Olive Garden. According to analysts, recent quarters have seen a decrease in the share price of DRI, with Olive Garden contributing only modestly in the fourth fiscal quarter of 2024. DRI is down by over 11% since the start of 2024. Same-restaurant sales for Olive Garden fell by 1.5% in the most recent quarter. The primary factor behind this decline is Olive Garden’s decision to avoid the deep discounts that its competitors were using. This strategy allowed rival chains to draw customers away from fast-food outlets. However, Olive Garden’s focus on maintaining generally low prices instead of providing large discounts is seen as a more sustainable approach in the long term. This is evident from Olive Garden’s same-store guest counts in the fourth quarter, which were approximately 0.6% above the industry average.
In fiscal Q4 2024, Darden Restaurants, Inc. (NYSE:DRI) reported revenue of $3 billion, which showed a 6.8% growth from the same period last year. This growth was attributed to the addition of 80 company-owned Ruth’s Chris Steak House locations and 37 other new restaurants. The company aims to continue expanding its network, with plans to open 45 to 50 new restaurants in FY25.
Darden Restaurants, Inc. (NYSE:DRI), one of the best dividend stocks in the restaurant industry, announced a 7% hike in its quarterly dividend on June 20 at $1.40 per share. The company has raised its dividends multiple times since it reinstated its payouts in September 2020. In FY24, it generated over $1.6 billion in operating cash flow, up from $1.5 billion in the previous year. The stock has a dividend yield of 3.89%, as of August 6.
At the end of March 2024, 32 hedge funds, up from 31 in the previous quarter, owned stakes in Darden Restaurants, Inc. (NYSE:DRI), according to Insider Monkey’s database. The overall value of these stakes is more than $345.2 million. Among these hedge funds, Steadfast Capital Management was the company’s leading stakeholder in Q1.
3. Yum! Brands, Inc. (NYSE:YUM)
Number of Hedge Fund Holders: 35
An American multinational fast-food holding company, Yum! Brands, Inc. (NYSE:YUM) ranks third on our list of the best dividend stocks from the restaurant sector. It is one of the biggest players in the fast food industry, with a portfolio that includes top fast food chains like KFC, Pizza Hut, and Taco Bell. The company recently reported its second-quarter 2024 earnings that showed declines in same-store sales for both Pizza Hut and KFC. According to the company’s CEO, the Middle East conflict and a more cost-conscious consumer have posed challenges to same-store sales. Around 200 of Yum’s restaurants are temporarily closed in the Middle East, Malaysia, and Indonesia. However, he noted that sales trends in the U.S. have shown improvement compared to the previous quarter, largely due to value meals like Pizza Hut’s $7 Deal Lovers. The stock surged by 2.65% on August 6, after announcing its quarterly earnings and year-to-date, its returns came in at over 6%.
Taco Bell experienced a 5% increase in same-store sales for the quarter. With most of its locations in the U.S., Taco Bell’s focus on value has helped it navigate the slowdown in consumer spending. The chain saw growth in same-store sales across all income groups. Yum! Brands, Inc. (NYSE:YUM) aims to boost profitability for its Taco Bell division by expanding the use of artificial intelligence in drive-thru lanes. By the end of the year, it plans to implement this technology across hundreds of Taco Bell locations in the U.S.
Yum! Brands, Inc. (NYSE:YUM)’s balance sheet reflects a robust cash position, making it attractive to income investors. As of the latest quarter, it holds $680 million in cash. Over the past twelve months, its operating cash flow reached $1.62 billion, while its levered free cash flow was $1.17 billion. In addition to this, the company has been growing its dividends consistently for the past seven years, which makes it one of the best dividend stocks on our list. It currently pays a quarterly dividend of $0.67 per share and has a dividend yield of 1.96%, as recorded on August 6.
Insider Monkey’s database of Q1 2024 indicated that 35 hedge funds held stakes in Yum! Brands, Inc. (NYSE:YUM), up from 33 in the previous quarter. These stakes are collectively valued at over $584.4 million. With more than 1.4 million shares, Cantillon Capital Management was the company’s leading stakeholder in Q1.
2. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 63
McDonald’s Corporation (NYSE:MCD) is an Illinois-based fast-food restaurant company. During the 2020 pandemic, the company gained significantly from increased prices, but now customers are resisting higher costs due to inflation. As a result, the company has extended its $5 Meal Deal Promotion. McDonald’s management noted that consumer sentiment, particularly among lower-income groups, remains weak across its major markets, with people being very selective. They anticipate that the challenging environment will persist for several more quarters. It seems that consumers are finally pushing back against the substantial price hikes that have occurred in the fast-food industry over recent years.
McDonald’s Corporation (NYSE:MCD)’s latest earnings report reveals that it is facing some challenges. Global comparable sales fell by 1.0%, with declines observed across all segments. Quarterly revenues were flat compared to the previous year. Despite these setbacks, analysts have not been overwhelmingly negative about the company’s performance. Given its size and scale, the company has significant leverage to adjust through its purchasing power and marketing strategies.
McDonald’s Corporation (NYSE:MCD) declared a quarterly dividend of $1.67 per share on July 26, which fell in line with its previous dividend. It is one of the best dividend stocks on our list as the company has been growing its payouts for 47 consecutive years. The stock supports a dividend yield of 2.47%, as of August 6.
Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 63 hedge funds held stakes in McDonald’s Corporation (NYSE:MCD). These stakes are collectively valued at roughly $2.3 billion.
1. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 69
Although it might not align with the classic notion of a full-service restaurant, Starbucks Corporation (NASDAQ:SBUX) manages an extensive network of coffeehouses around the globe, offering a range of drinks and food items for customers. The company reported a strong cash position in its recently-announced fiscal Q3 2024 earnings. Through the first three quarters of the year, it generated over $4.5 billion in operating cash flow, up from $4.06 billion in the same period last year. This solid cash generation allowed the company to pay dividends for 57 consecutive quarters, with a compound annual growth rate of 20% during this period. Moreover, it has raised its payouts for 13 years in a row. It currently offers a quarterly dividend of $0.57 per share and has a dividend yield of 3.03%, as of August 6.
Since the start of 2024, Starbucks Corporation (NASDAQ:SBUX) is down by over 19.5%. The stock was performing well compared to the market until the pandemic hit, which led to a sharp decline in its share price that hasn’t fully recovered. This may be attributed to the company’s difficulty in adjusting to changing trends, as well as high prices driven by inflation, which are driving customers away. Diamond Hill Capital also shed light on this aspect of SBUX in its Q2 2024 investor letter. Here is what the firm has to say:
“Starbucks Corporation (NASDAQ:SBUX) is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today’s earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.”
Starbucks Corporation (NASDAQ:SBUX) remained popular among elite funds at the end of Q1 2024, with hedge fund positions growing to 69, from 59 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $2.7 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q1.
While we acknowledge the potential of SBUX as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than SBUX but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
