Darden Increases Dividend

On June 23, 2009, Darden Restaurants, Inc. (DRI) increased its quarterly dividend by 25% to $0.25 per share, resulting in an annual dividend of $1.00 per share. Previously, the company had paid a quarterly dividend of $0.20 per share. The increased dividend would be paid on August 3, 2009 to shareholders as of July 10, 2009.

In another move to increase shareholders' return, the company repurchased 0.4 million shares in 4Q09, the most recently reported quarter. In fiscal 2009, Darden spent $145 million to buyback 5.1 million shares. Since the commencement of the share repurchase program in December 1995, the company has repurchased over 152 million shares for an aggregate amount of $2.92 billion under its authorization of 162.4 million shares.

The increase in dividend and share repurchase highlights Darden's resilience in a turbulent economy. The company is faring better than its casual dining competitors -- Cosi Inc. (COSI), California Pizza Kitchen (CPKI), Red Robin Gourmet Burgers (RRGB), Brinker International (EAT) and Cheesecake Factory (CAKE).

In a struggling economy where consumers are dining out less and restaurants are wooing consumers by offering discounts, Darden's brands have held their ground within the industry. The combined comparable restaurant sales for Olive Garden, Red Lobster and LongHorn Steakhouse slid 1.4% compared to a 6.7% average decline in the casual dining industry's Knapp-Track benchmark.

Darden recently reported higher-than-expected quarterly earnings -- up 15.4% to $0.90, excluding $0.03 for the estimated integration costs and purchase accounting adjustments -- but gave a bleak outlook. Management opined that the weakness seen in the restaurant industry for the last six months will remain throughout fiscal 2010, and expects combined comparable restaurant sales for company's three brands to be between -2% and flat for fiscal 2010.

Based on a comparable sales outlook, management expects revenue to vary between -1% and +1%, and EPS between -2% to +8% for the fiscal 2010.

The Zacks Rank for DRI stock is #3 (Hold). Yesterday the stock closed at $32.78, trading at a P/E ratio of 13.20x based on TTM [trailing twelve month] EPS. The current dividend yield is 3.1%.

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