Darden Restaurants Offers 3% Dividend Yield (DRI)

Darden Restaurants, Inc. (NYSE:DRI) saw its dividend yield rise from 2.7% to 3% because of a double-digit percentage share price drop during the recent market sell-off.

While unfortunate for existing shareholders in the short term, the recent share price drop could make the price reduction a good opportunity for long-term investors to take a position at a discounted price. Even after the sharp drop over the past few days, the shareholders still received a double-digit percentage total return over the past 12 months and more than doubled their money over the past five years.

Darden Restaurants will distribute its next dividend on the company’s May 1, 2018, pay date to all its shareholders of record prior to the April 9, 2018, ex-dividend date.

Darden Restaurants, Inc. (NYSE:DRI)

Founded in 1968 and based in Orlando, Florida, Darden Restaurants, Inc., through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. As of June 27, 2017, the company owned and operated approximately 1,700 restaurants under the Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s brands.

The company’s share price began the trailing 12 months (TTM) with a 1.5% drop to its 52-week low of $78.58 on March 27, 2017. Over the following 90 days, the share price rose nearly 23% and then lost almost all those gains over the next 90 days. The share price was back to within 2% of the March bottom by the end of September 2017. Starting in late September, the share price rose nearly 30% towards its new all-time high of $99.31 by January 5, 2018.

After peaking in early January, the share price pulled back slightly and declined 4.4% by March 20, 2018, only to drop another 13% over the following three days. The share price closed on March 26, 2018 at $84.38, which was 10% higher than it was 12 months earlier and 11.6% above the 52-week low from March 2017.

In its quarterly earnings call on March 22, 2018, the company’s management announced that same-store sales did not grow as much as expected. However, the company managed to hold cost escalation to a lower-than-expected growth rate. The resulting $1.71 adjusted diluted net earnings per share (EPS) from continuing operations exceeded the $1.64 analysts’ expectation by 4.2%.

The company’s current $0.63 quarterly dividend is 12.5% higher than it was in the same period last year. This current quarterly payout converts to a $2.52 annualized distribution and currently yields 3%. Additionally, every time that the company boosted its payout over the past decade, it did so in the third quarter of the calendar year. Therefore, any quarterly dividend hikes for 2018 should occur in the next quarter.

In 2015, Darden Restaurants paid the same $2.20 annual dividend as it did in 2014 and then cut the annual dividend amount 3.6% to $2.12 in 2016. The company’s current streak of consecutive annual dividend hikes is only two years. Over the past two years, the company enhanced its total annual dividend amount 19% by raising the annual payout at an average rate of 9% per year.

However, the company hiked its annual dividend 12 times over the past 14 years. Prior to stalling its annual dividend boosts in 2015, the company raised its annual dividend for 10 consecutive years between 2004 and 2014. Darden Restaurants managed to enhance its annual dividend amount more than 30-fold from $0.08 in 2004 to the current $2.52 annual amount. That level of improvement is equivalent to an average growth rate of nearly 28% per year since 2004 and includes the flat annual dividend payout in 2015 as well as the 2016 dividend cut.

Darden Restaurants’ current 3% yield is 41% higher than the 2.12% average yield of the entire Services sector and almost 70% higher than the average yield of all the companies in the Restaurants market segment. The company’s current yield is also nearly 30% above the 2.31% average yield of only dividend-paying companies in the segment

Darden Restaurants rewarded its shareholders with asset appreciation and a rising dividend income that combined to give a 15.6% total return over the last 12-months. Additionally, the total return over the longer three- and five-year periods were 56% and 119% respectively.

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