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James Li
James Li
Articles (1392)  | Author's Website |

3 Restaurant Stocks With High Dividend Yields as McDonald's Comp Sales Sink in March

Stocks to take a bite out of on optimism that coronavirus outbreak is nearing its peak

In light of McDonald’s Inc. (NYSE:MCD) reporting weak comparable sales results in March and optimism regarding the peak of the Covid-19 outbreak, three restaurant stocks with good business predictability and high dividend yields are Cheesecake Factory Inc. (NASDAQ:CAKE), Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL) and Dave & Buster’s Entertainment Inc. (NASDAQ:PLAY).

Fast-food chain McDonald’s updates preliminary results for March

McDonald’s, a popular fast-food restaurant chain known for products like the Big Mac and Chicken McNuggets, said on Wednesday that comparable sales declined 22% during March as the coronavirus outbreak “significantly disrupted” the company’s business according to an update from CEO Chris Kempczinski. Comp sales in the U.S. sank 13.4% in March while comp sales in international opened markets tumbled 34.9%.

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The Chicago-based company withdrew its full-year and long-term outlook issued on Feb. 26 due to the uncertainty caused by the virus.

Stock rises despite weak March comp sales

Shares of McDonald’s traded at an intraday high of $179.42, an increase of approximately 2.18% from the previous close of $175.59.

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GuruFocus ranks McDonald’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a return on assets that outperforms 94.07% of global competitors and operating margins that have increased approximately 9.10% per year on average over the past five years.

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Coronavirus outbreak starts declining, suggesting a peak

Dr. Anthony Fauci, White House health advisor and director of the National Institute of Allergy and Infectious Diseases, said on Fox News that while casualties might increase over the rest of the week, the U.S. “should see ‘the beginning of a turnaround’” following this week. The Dow Jones Industrial Average closed at 23,433.57, up 779.71 points from the previous close of 22,653.86 and 753.58 points from Monday’s close of 22,679.99.

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As the coronavirus outbreak starts declining, restaurants could eventually return to full capacity. Kempczinski said in his business update that the company is able to “adapt and continue serving customers where it is safe to do so.” Over 75% of McDonald’s restaurants remain operational, focusing on drive-thru, delivery and take-away. As such, investors might seek opportunities in restaurant companies with good business predictability and high dividend yields as prices remain depressed.

Cheesecake Factory

Cheesecake Factory owns and operates over 200 restaurants under the Cheesecake Factory, Grand Lux Café and RockSugar Pan Asian Kitchen brands. GuruFocus ranks the Calabasas Hills, California-based company’s profitability 8 out of 10 on several positive investing signs, which include consistent revenue growth over the past 10 years and a return on equity that is outperforming 90.94% of global competitors.

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Cheesecake Factory’s valuation ranks 10 out of 10 on several signs of undervaluation, which include price-earnings, price-book and price-sales ratios all near 10-year lows. Additionally, Cheesecake’s price-earnings ratio of 6.49 outperforms 88.18% of global restaurants while its dividend yield of 7.64% outperforms 90.36% of global competitors.

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Gurus with large holdings in Cheesecake Factory include Ron Baron (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).

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Cracker Barrel

Cracker Barrel offers home-style meals at its hundreds of restaurants around the U.S. GuruFocus ranks the Lebanon, Tennessee-based company’s profitability and valuation 8 out of 10 on several positive investing signs, which include expanding operating margins, consistent revenue growth, a return on equity that outperforms 96.44% of global competitors and price-book and price-earnings ratios close to 10-year lows. Cracker Barrel’s dividend yield of 6.28% outperforms 84.77% of global restaurants.

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Gurus with large holdings in Cracker Barrel include Jim Simons (Trades, Portfolio)' Renaissance Technologies and Pioneer Investments (Trades, Portfolio).

Dave & Busters

Dave & Busters owns and operates nearly 100 entertainment and dining venues in the U.S. where people can eat, drink and play games. GuruFocus ranks the Dallas-based company’s profitability 7 out of 10 on several positive investing signs, which include a four-star business predictability rank and operating margins that have increased approximately 1.40% per year on average over the past five years and are outperforming over 80% of global competitors.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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