Bite Into Wendy's Tasty Dividend Now, Profit From Its Growth Later
Comparable-store sales growth has been hard to come by in the restaurant sector, but fast-food giant Wendy's (WEN) - Get Report continues to figure out ways to get more customers into its restaurants -- and those customers are spending more during each visit. Wendy's shares are worth buying and holding until the company shows signs of slowing growth, which is not expected for a while.
Headquartered in Dublin, Oh., Wendy begins trading ex-dividend Friday, Nov. 27, the day after Thanksgiving. To qualify for a dividend check, investors must own Wendy's stock on or before its ex-dividend date -- the last day the company will finalize its roster of shareholders to whom it will send dividend checks.
Investors of record as of Tuesday, Dec. 1 will receive Wendy's 6-cent quarterly payout on Dec. 15. With Wendy's stock trading at around $10, the dividend yields 2.30% annually -- 30 basis points higher than that of the average stock in the S&P 500 (SPX) index, which has a yield of 2%.
This will mark the first time Wendy's will pay a dividend of 6 cents, up from last quarter's dividend of 5.5 cents.
Wendy's has been one of the more generous payers on the market, raising its dividend by about 300% since 2010. What's more, during that span, Wendy's shares have climbed about 115%, besting both the Dow Jones Industrial Average (DJI) (up 59% since 2010) and the S&P 500 index (up 74% since 2010).
Despite the 17% year-to-date gains in Wendy's shares, the next 12 months are looking even better.
Why? Owing to its system optimization initiative, which began in 2013, Wendy's is heading for periods of greater profitability in the years ahead. And with third-quarter North American same-store sales climbing 3.1%, Wendy's is showing no sign of slowing down. The stock's high analyst target of $14.50 is likely the next benchmark.
Why this confidence? For one, Wendy's is changing how it does business and is focusing more on a franchise-based model. The company is willing to sacrifice near-term revenue today so it can save on large overhead expenses in the future. It's a worthwhile bet, especially since profit margins at its company-owned North American stores are still growing (up 40 basis points in the third quarter). These maneuvers should translate to higher profits.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.