Cracker Barrel Old Country Store, Inc.: Strong Dividend Growth at a Reasonable Price
A Top Dividend Growth Stock for Income Investors
If you’ve been following the markets long enough, you’ll probably have noticed that there is always a strong demand for dividend growth stocks. And this shouldn’t come as a surprise: no matter which direction the stock market is going, dividends provide a surefire way for investors to get paid. And who doesn’t want to get paid more as time goes by?
In other words, companies that have the ability to increase their dividends consistently are always highly sought after. It doesn’t help the case that the stock market just soared past its all-time high. As a result, most of the well-known dividend growth stocks have gotten quite expensive.
And that’s why today I want to talk to you about Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL).
Headquartered in Lebanon, Tennessee, Cracker Barrel is in the restaurant business. Along with its affiliates, the company operates 660 Cracker Barrel Old Country Store locations spread across 45 states.
What’s unique about these locations is that, other than having a Southern country-themed dining area, a typical Cracker Barrel store also consists of approximately 2,100 square feet of retail space selling things such as rocking chairs, seasonal gifts, toys, apparel, and branded food. Therefore, the company can make money from both its restaurant and retail business. (Source: “Bank of America Merrill Lynch Consumer & Retail Technology Conference March 2019,” Cracker Barrel Old Country Store, Inc., last accessed July 25, 2019.)
At the same time, the company also owns the fast-casual Holler & Dash restaurants.
Cracker Barrel Old Country Store, Inc. Is a Dividend Bonanza
Now, CBRL is not a stock that often makes headlines in the financial media, but the company stands out due to its sizable dividend increases.
In 2013, Cracker Barrel stock paid four quarterly dividends that added up to $2.50 per share. In 2018, the company’s quarterly dividends totaled $4.90 per share. That marked a total increase of 96% in just five years. (Source: “Dividends History,” Cracker Barrel Old Country Store, Inc., last accessed July 25, 2019.)
Mind you, quarterly dividends aren’t the only checks that CBRL stock investors have been collecting; there have also been special dividends. The company paid a $3.00-per-share special dividend in 2015, a $3.25-per-share special dividend in 2016, a $3.50-per-share special dividend in 2017, and a $3.75-per-share special dividend in 2018. Those payments were on top of the company’s regular dividends.
The dividend bonanza is continuing at this restaurant chain. In its latest earnings report, Cracker Barrel announced another special dividend of $3.00 per share. That payment was delivered to investors on August 2. (Source: “Cracker Barrel Reports Third Quarter Fiscal 2019 Results, Increases Quarterly Dividend, Declares Special Dividend, And Authorizes Share Repurchases,” Cracker Barrel Old Country Store, Inc., June 4, 2019.)
Meanwhile, the company’s regular dividends have kept on rising. In that same announcement, Cracker Barrel said that its board of directors has declared a quarterly cash dividend of $1.30 per share. That’s a four percent increase from its previous quarterly dividend of $1.25 per share. Looking further back, we see that, in the past 10 years, CBRL stock’s quarterly dividend rate has increased by a staggering 550%.
And if you are wondering whether the company can afford all these dividend hikes, note that, in the most recent reporting quarter—the third quarter of CBRL’s fiscal 2019, which ended May 3—the company’s earnings per share grew three percent year-over-year to $2.09. The amount easily covered Cracker Barrel’s $1.25-per-share cash dividend declared during the quarter.
For full-year fiscal 2019, management expects Cracker Barrel to earn net income of between $8.95 and $9.10 per share; that’s more than $0.90 per share at the midpoint.
Since the company is on track to pay four quarterly dividends totaling $5.10 per share for the fiscal year, reaching the midpoint of the guidance range would allow it to have a regular dividend payout ratio of 56.5%. Such a low payout ratio not only leaves a wide margin of safety, but would also give management plenty of room for future dividend increases.
Of course, that payout ratio does not include the massive special dividend the company just paid. Still, even if you count that in, making the total expected dividends $8.10 per share for the fiscal year, the amount would still be covered by the company’s expected earnings per share.
Not an Expensive Stock
As I mentioned earlier, the popularity of solid dividend growth stocks means most of them have gotten quite expensive. But that’s not the case at Cracker Barrel Old Country Store, Inc.
Trading at $170.46 per share, CBRL stock has a price-to-earnings (P/E) ratio of 18.77 times, which is substantially lower than the restaurant and bar industry’s average P/E ratio of 67.17 times. Moreover, the company’s price-to-sales ratio (1.32 times) and price-to-cash-flow ratio (12.7 times) are also much lower than the industry’s averages (2.78 times and 27.14 times, respectively.). (Source: “Cracker Barrel Old Country Store Inc (CBRL.O),” Reuters, last accessed July 25, 2019.)
With an annual yield of 3.1%, Cracker Barrel Old Country Store, Inc. is not exactly a high-yield company. But with strong dividend growth potential, a reasonable valuation, and the possibility of future special dividends, CBRL stock should remain a top pick for income investors.