Cracker Barrel's Country-Good Dividend

NEW YORK (TheStreet) -- Last week, casual-dining chain Cracker Barrel (CBRL) raised its quarterly dividend 33 percent to $1 a share -- a rather bold move that went relatively unnoticed as investors had bigger fish to fry during an intense week of quarterly earnings releases.

Cracker Barrel's latest increase followed a 50% dividend bump last year, and since 2010, the company has quintupled the dividend. The latest increase puts Cracker Barrel in second place among the top yielding restaurant stocks, with a formidable 4.1% yield, just behind Darden Restaurants' (DRI) 4.4% yield. With the 10-year Treasury note yielding 2.6%, those yields are nothing to sneeze at.

Cracker Barrel has been under pressure the past couple of years from 20% owner Biglari Holdings (BH), which has sought board seats and changes at the company.

Last year, that company's CEO, Sardar Biglari, was pushing Cracker Barrel to pay a one-time $20 special cash dividend, funded by some of the company's cash and via the issuance of debt, a proposal that was rejected by shareholders.

Although shareholders won't be seeing that $20 special dividend, they will still enjoy a noticeable jump in quarterly distributions. Interestingly, Biglari Holdings will be a big beneficiary of the move, raking in more than $19 million alone next year in Cracker Barrel dividends.

The big question is given the amount of the latest increase whether Cracker Barrel's dividend will be sustainable. Based on 2015 earnings estimates of $5.71 per share, the new dividend represents a 70% payout ratio, which by my math is among the highest of dividend-paying restaurant stocks. While that does leave some room for error, the last thing a company wants to face is a dividend cut.

CBRL Chart CBRL data by YCharts

Looking out to 2016, estimates are calling for earnings per share of $6.30, which if achieved would put the payout ratio at a somewhat safer 63%. That assumes, however, that the dividend stays constant, and it is unclear whether Cracker Barrel has future dividend increases in mind.

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At the time of publication, Heller was long Biglari Holdings.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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