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A Closer Look at Texas Roadhouse's Impressive Dividend

By Daniel Sparks - Mar 4, 2020 at 9:30AM

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The casual-dining steakhouse just increased its quarterly cash payout to shareholders by 20%.

When Texas Roadhouse (TXRH 2.85%) reported fourth-quarter results last month, many investors probably noticed the company's strong fourth-quarter revenue and earnings-per-share growth. The casual-dining steakhouse's top and bottom lines both easily beat analysts' average expectations. Revenue jumped 20% year over year and earnings per share soared 45%. 

But what some shareholders might have missed was management's shareholder-friendly moves to return capital to shareholders, including share repurchases and a dividend increase. Texas Roadhouse's dividend is especially becoming more applicable recently, now that the stock has fallen sharply amid concerns surrounding the coronavirus outbreak's potential impact on the restaurant industry. A lower share price, of course, means a higher dividend yield.

With Texas Roadhouse's dividend yield looking more attractive in light of the stock's 20% selloff since Feb. 21, here's a closer look at the dividend.

Steaks cooking on a grill

Image source: Getty Images.

A 20% dividend increase

Alongside its fourth-quarter results on Feb. 20, Texas Roadhouse also announced a 20% increase to its quarterly dividend.

"[O]ur healthy cash flow allowed us to increase our quarterly cash dividend to $0.36 per share in 2020 which is our seventh straight year of increasing our dividends by double digits," said Texas Roadhouse CEO Kent Taylor in the company's fourth-quarter earnings release.

This $0.36 quarterly dividend comes out to $1.44 annually, translating to a dividend yield of about 2.5%. This puts the stock's dividend yield ahead of the average dividend yield of stocks in the S&P 500. On average, stocks in the market index have a dividend yield of 2.1%.

More dividend growth ahead

What's particularly great about Texas Roadhouse's dividend is how sustainable it is. The company is currently paying out less than half of its earnings in dividends. Therefore, there's plenty of breathing room for the restaurant's dividend.

Even more, since Texas Roadhouse's earnings are growing rapidly, there's no reason the restaurant stock can't keep increasing its dividend by double-digit rates in the coming years. The company's income from operations jumped 13% year over year in 2019. Earnings per share for the same period was up 12%. Even more, analysts expect earnings per share to increase at an average rate of 15% annually over the next five years. 

Returning cash to shareholders in more ways than one

Of course, Texas Roadhouse is also returning excess cash to shareholders indirectly via share repurchases. During the full year of 2019, the company spent $140 million repurchasing more than 2.6 million shares.

Given Texas Roadhouse's rising revenue, growing earnings, and conservative payout ratio, the casual-dining specialist is well positioned to continue returning significant sums of capital to shareholders through dividends and share repurchases.

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Texas Roadhouse, Inc. Stock Quote
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