In a recent show devoted to southern restaurant and gift store chain Cracker Barrel (NASDAQ:CBRL), the Motley Fool Industry Focus podcast team analyzes the company's juicy shareholder returns, which include rising dividend payments and, over the last few years, annual special dividends. While shareholders aren't likely to pass up these attractive payouts, would the money be better spent on new locations?
A full transcript follows the video.
This video was recorded on Feb. 19, 2019.
Nick Sciple: A really fascinating offering from what ostensibly is a restaurant business. On the retail side, very profitable, over $400 per square foot on the retail side of the business. A really profitable part of the business, and really drives the cash cow aspect of Cracker Barrel, which is what you mentioned off the top: They've really put an emphasis on their dividend over the past several years. Last year they declared a $3.75 special dividend. The business yields almost 3%, 2.94% today. Really an interesting dividend opportunity from Cracker Barrel, particularly if you think the expansion opportunities are limited and they can keep squeezing the juice out of what their current assets are. What thoughts do you have about Cracker Barrel's dividend and what opportunity it might provide, Asit?
Asit Sharma: It's a reflection on how the company allocates its capital. Again, not to get too far ahead of ourselves because we've got a great conversation in the second part of the show coming up about how it's used its capital. The special dividends plus the regular dividends, which are rising, I was just doing some thumbnail calculations, they'll return to shareholders 5-6% a year, effective yield, if they keep issuing these dividends.
In the past, the company has really poured its excess capital not toward shareholders' pockets, but to expansion, and not always to good effect. In past years, the company expanded without much of a game plan, didn't focus on unit profitability, just looked at that aggregate punch that every new store gives you toward your top line. I think this reflects a more mature focus in some ways. When you have a cash cow business, you have to show shareholders a little bit of the money. Now, if you can optimize the business in such a way that you're also expanding and getting a high return on invested capital from stores, new units, etc., that's even better. But at base, shareholders expect to see some when they see a mature business. This business has been around for a few decades. When they see a mature business that's yielding a lot of excess cash flow, they want theirs. The company started their special dividend in 2015 and have increased it every year. I think in the last five years or so, they've shown more of an appreciation for their own shareholders.