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Juicy Dividends at Darden Restaurants

NEW YORK ( TheStreet) -- Although I'm not a big fan of eating at "chain" restaurants, if I had to eat at one, it would probably be owned by Darden (DRI - Get Report). My first choice might be an Olive Garden Restaurant and my second would probably be Wildfish Seafood Grille.

As an investor who has never owned shares of Darden, it's amazing that, off the top of my bald head, I know of two of its brand-name chains. Others include Red Lobster, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, and Eddie V's Prime Seafood.

This incubator of restaurant chains has been around a good while, and has grown tremendously. As of December 20, 2012, DRI owned and operated approximately 2,000 restaurants. The company was founded in 1968 and is headquartered in Orlando, Florida.

On Friday, March 22, before the markets opened, DRI announced that third-quarter net income had dropped 18%. Part of the reasons given had to do with reduced sales at its Red Lobster chain. But the good news was that the EPS performance still beat Wall Street's expectations. Pass the melted butter, please, and put on a bib!

Let's go straight to the juicy part: Dividends. Darden's board declared a quarterly dividend of 50 cents per share. The dividend will be paid on May 1 to shareholders of record on April 10. At the current share price of around $49.50, this makes for an annual yield-to-price of 4.04%.

When you consider that discount box-store "king" Wal-Mart's (WMT) stock has a current yield-to-price of only 2.54%, you can see the DRI dividend advantage.

Will DRI be able to sustain this generous dividend? As of the last quarter, the payout ratio was a tad on the high side, at 50%, according to Yahoo! Finance. In the quarter ahead, with the outlook being for improving sales profits and better EPS, my answer to the dividend question is "yes."

Jim Cramer and Stephanie Link actively manage a Real Money portfolio for Jim's charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

The share price is well below the 52-week high of $57.93. Analysts' one-year price target is pending, until they've had a chance to digest the earnings report and conference call. If DRI can control its capital expenditures and operating costs, the CEO said today that a dividend increase is in the offing. If DRI increases its dividend between now and the end of the current quarter, it wouldn't surprise me to see the 12-month price target jump to $58 or higher.

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