Treasury interest rates have continued to creep up this summer, with the 10-year currently yielding 2.7%, a huge advance from earlier this spring. Unfortunately for bondholders, that increase in yield comes with a corresponding decrease in price.

If you're a conservative investor looking for yield plus price appreciation, you're actually doing yourself a grave disservice if you stick to the bond universe. For Foolish investors, stable stocks with growing dividends are worth a look.

To find the best dividend stocks, look for a combination of excellent dividend-raising history, high current yield, and superior potential for earnings growth. Earnings are important, and you should also examine the projected five-year earnings growth rate as well as the current P/E and the past-12 months' share price increase.

Here are three restaurant companies that promise terrific income and future growth potential.

Is McDonald's at a good entry point?
(NYSE:MCD) is currently trading at $98 per share and yields 3.2%. The company has raised its dividend every year for 36 years. Its five-year dividend growth rate (DGR) is an impressive 15.5%, and its payout ratio is a reasonable 55%. This leaves plenty of cash for further investments in the company as well as returning some to shareholders.

The company will announce Q3 earnings on Oct. 21, and analysts are looking for $1.51 per share, or a 6% increase over last year's third quarter. Overall 2013 earnings are projected at 1 5% increase versus 2012, and 2014 is currently projected with a 9% increase.

McDonald's has a terrific dividend growth rate, which sees the dividend doubling every five years, as well as a lengthy history of raising dividends and a reasonable payout ratio. The stock's performance year-to-date, however, has not kept up with the broader market, and has under-performed in its sector. This may be the perfect time to get in.

High yield and a great DGR
Darden Restaurants (NYSE:DRI)
, parent company of such fast-casual restaurants as Red Lobster and Olive Garden, is currently trading at $46 and yields 4.5%. The company has been raising dividends consistently for nine years, and has a five-year DGR of 22.4%. Its five-year projected earnings growth rate is 4.9%, its P/E is 15.6, and its payout ratio is 63%.

Darden's last dividend increase was in July, when the company announced a 10% increase. The company's five-year DGR of 22% means the dividend has doubled roughly every three or so years.

Darden reported earnings on Friday, Sept. 20, with a big miss, and the stock dropped by nearly 6%. While overall sales increased by 6%, profit dropped 37% versus the same quarter last year, blamed on rising food prices, hefty discounting and reluctant diners. The uncertain economic recovery is still affecting consumers' desire to spend money eating out. 

Darden does pay a terrific yield, and has been growing its dividend at an amazing clip for the nine years that it has been paying a dividend. Future earnings, though, are a cause for concern.

Special dividend on the horizon?
Cracker Barrel Old Country Store (NASDAQ:CBRL)
has been a favorite dividend stock for almost a year. The company is currently trading at $107 and yields 2.9%. The company has been raising dividends consistently for 11 years, and has a five-year dividend growth rate of 33%. Its five-year projected earnings growth rate is 10%, its P/E is 21.9, and its payout ratio is 38%.

Cracker Barrel has been a very popular company this year; the share price is up 66%, which has led to a slight decline in the yield and a significant rise in the P/E over historical levels.

Just revealed this week  – Cracker Barrel's biggest shareholder, Sardar Biglari, who holds 4.7 million shares (20% of outstanding shares), has met with the company's CEO, James Bradford. He proposed a special one-time dividend of $20 per share in order to return a significant amount of cash to shareholders.

Biglari has requested that the proposal be put to a shareholder vote; the company has acknowledged receipt of the proposal but has not yet responded. Biglari has been struggling with the management at Cracker Barrel for several years now, and has twice lobbied unsuccessfully  to be elected to the board of directors.

Cracker Barrel has had a terrific run-up in price with a corresponding decline in yield. While it still beats the S&P 500's yield, higher yields could be obtained by selling off and reinvesting the proceeds in something else.

Likewise, McDonald's 3% yield is not remarkable, but it is rock solid, and it would take a disaster of monumental proportions for the company to cut (or even fail to raise) its dividend.

And Darden offers a sweet yield. If you feel this quarter's earnings performance is just a speed-bump, now might be a really good time to get into the stock.


Karin Hernandez has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of Darden Restaurants and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.