Back to top

Image: Bigstock

4 Dividend-Paying Restaurant Stocks to Shield Against Inflation

Read MoreHide Full Article

The restaurant industry is feeling the heat of high inflation levels. Although inflation declined for the second straight month in August, it is still very high. The Consumer Price Index increased to 8.3% in August 2022 on a year-over-year basis. Following the release of inflation numbers, market pundits are now expecting a 75-basis-point interest rate hike later this month by the Federal Reserve.

The restaurant industry has also been facing declining traffic for quite some time now. Inflation has aggravated the scenario. High inflation leads to higher menu prices, which, in turn, has been hurting traffic. The restaurant operators are grappling with the high cost of operations. Intense competition, high wages and food cost inflation remain concerns. The industry is persistently bearing increased expenses, which have been affecting margins of late.

Additionally, higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are weighing on the industry’s margins. The rise in meat and seafood costs, including ribs, prime rib, ribeye and tri-tip, and salmon, is hurting the industry.

In the current circumstances, predictably, defensive stocks have caught investors’ fancy. These stocks can help shore up hard-earned profits during difficult market conditions. Further, they offer appreciably higher dividend yields.

Stocks like McDonald's Corporation (MCD - Free Report) , Yum! Brands, Inc. (YUM - Free Report) , Jack in the Box Inc. (JACK - Free Report) and Ruth's Hospitality Group, Inc. (RUTH - Free Report) , which pay dividends regularly, might fetch you promising returns.

4 Restaurants Stocks to Watch

With the help of the Zacks Stock Screener, we have selected four restaurant stocks that have a Zacks Rank #2 (Buy) or 3 (Hold) with a dividend yield of more than or equal to 2% and a five-year historical dividend growth greater than or equal to 2%. Moreover, these stocks’ payout ratio is less than 60, reflecting enough room for future dividend increases. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

McDonald's: The company’s increased focus on menu innovation and loyalty program expansion is commendable. The company is also undertaking every effort to drive growth in international markets. Robust digitalization will help the company in driving long-term growth and capturing market share.

McDonald's has an estimated long-term earnings growth rate of 8.4%. This Zacks Rank #3 company pays out a quarterly dividend of $1.38 ($5.52 annualized) per share, giving a 2.2% yield at the current stock price. MCD’s payout ratio is 56, with a five-year dividend growth rate of 8%. (Check MCD’s dividend history here)

Yum! Brands: The company has been benefiting from its continued focus on off-premise channels, strategic investments in digital technology and refranchising efforts. Moreover, it has implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience.

Yum! Brands has an estimated long-term earnings growth rate of 11.9%. This Zacks Rank #3 company pays out a quarterly dividend of 57 cents ($2.28 annualized) per share, giving a 2% yield at the current stock price. YUM’s payout ratio is 53, with a five-year dividend growth rate of 13%. (Check YUM’s dividend history here)

Yum Brands, Inc. Dividend Yield (TTM)

Yum Brands, Inc. Dividend Yield (TTM)

Yum Brands, Inc. dividend-yield-ttm | Yum Brands, Inc. Quote

Jack in the Box: Emphasis on initiatives like menu innovations, delivery channels and marketing strategies bode well for Jack in the Box. It is investing aggressively in store improvements and new store build and innovating via digital operations.

Jack in the Box has an estimated long-term earnings growth rate of 17%. This Zacks Rank #3 company pays out a quarterly dividend of 44 cents ($1.76 annualized) per share, giving a 2.1% yield at the current stock price. JACK payout ratio is 28, with a five-year dividend growth rate of 2.2%. (Check JACK’s dividend history here)

Ruth's Hospitality Group: The company has been seeing robust restaurant sales and franchise income. Strong comparable sales are also aiding Ruth's Hospitality Group.

Ruth's Hospitality Group has an estimated 2022 and 2023 earnings growth rate of 24.8% and 11.2%, respectively. This Zacks Rank #2 company pays out a quarterly dividend of 14 cents 56 cents annualized) per share, giving a 3.1% yield at the current stock price. RUTH’s payout ratio is 43, with a five-year dividend growth rate of 7.6%.(Check RUTH’s dividend history here)

Published in