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Dine Brands Stock Serves Up Growth, Dividends

ihop a member of the dine brands family

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Friday, 12 July 2019 02:04 PM Current | Bio | Archive

The U.S. restaurant industry had some tough years recently, but is widely enjoying a major comeback. The U.S. economy remains supportive of the industry’s growth, as rising wages and falling unemployment put more disposable income in consumers’ pockets.

Revitalized menu offerings and renovated locations have also brought customers back over the past year.

The top industry operators like Dine Brands DIN (NYSE) are firing on all cylinders.

Dine Brands stock has returned 46% so far in 2019, more than double the return of the S&P 500 Index. We see the potential for further gains as Dine Brands continues its turnaround and rewards shareholders with excellent cash returns, making it one of the top restaurant stocks to buy today.

On The Comeback Trail

Dine Brands Global is a casual restaurant company that operates under the company-owned and franchise model. Its brands include Applebee’s and International House of Pancakes (IHOP).

It wasn’t too long ago that the casual restaurant industry was in dire shape.

Intense competition was hurting many casual sit-down restaurants, as consumers were gravitating toward new concepts and fresher menu offerings. This caused Dine Brands’ earnings per share to decline 32% in 2017.

The company closed multiple under-performing restaurants.

Fortunately, Dine Brands has enjoyed a resurgence. It invested heavily in modernizing its restaurants, closing locations that were not meeting the company’s standards, and focusing more intently on providing value to customers. As its two major brands, Applebee’s and IHOP, still had a lot of brand recognition, the turnaround proved quicker than many had expected.

Dine Brands reported excellent financial results for its most recent quarter.

Revenue increased 26% thanks to stronger franchise fees. Comparable sales, which measures sales at restaurants open at least one year, increased 1.8% for Applebee’s and 1.6% for IHOP. The company’s earnings per share soared over 70% for the quarter.

Looking forward, this year should be another strong one for Dine Brands. The company expects comparable restaurant sales growth of 2% to 4%, as well as approximately 31% EPS growth for the full year. Such a strong growth rate will easily allow Dine Brands to continue rewarding shareholders with cash returns.

Feeding Investors With Cash

Dine Brands returns lots of cash to investors each quarter, through share repurchases and dividends. In the 2019 first quarter, the company repurchased 151,316 shares of its common stock for a total cost of approximately $12.0 million and paid quarterly cash dividends totaling approximately $11.2 million.

Dine Brands’ aggressive share buybacks help boost earnings per share, as each share repurchased and retired leaves more profits available for each remaining share.

Meanwhile, income investors should see reason to like Dine Brands stock as well.

The company currently pays an annualized dividend of $2.76 per share, equaling a 2.8% dividend yield at the current stock price. This is significantly above the average dividend yield of the S&P 500, currently around ~2%.

Dine Brands cut its quarterly dividend by 35% in early 2018 as the company needed to preserve cash to invest in its turnaround. But this is one of the rare instances in which a stock has performed extremely well following a dividend reduction. Dine Brands has also returned to dividend growth, raising its quarterly payout by 10% in 2019.

With a modest stock valuation, positive future growth outlook, and attractive dividend yield, we view Dine Brands as one of the top restaurant stocks to buy today.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Dine Brands cut its quarterly dividend by 35% in early 2018 as the company needed to preserve cash to invest in its turnaround. But this is one of the rare instances in which a stock has performed extremely well following a dividend reduction.
applebees, ihop, dividend, s and p
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2019-04-12
Friday, 12 July 2019 02:04 PM
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