The last few years have brought unprecedented challenges to the restaurant industry, but many dining-out companies are adapting and are back in growth mode again.

Suburban America steakhouse chain Texas Roadhouse (TXRH 0.39%) is one such restaurant. Sales and profits were up a healthy amount in the third quarter of 2022. This comes in spite of one of the highest inflation rates in decades, which typically puts a cap on household spending on things like eating out. 

If a dividend-growth stock is what you want to order, here's why Texas Roadhouse is worth considering.

Sales and earnings make a big rebound

After a tough 2020, Texas Roadhouse's revenue has been back on the upswing. Earnings are also well above where they were pre-pandemic even as inflation has more recently been a challenge.

TXRH Revenue (TTM) Chart

Data by YCharts.

Roadhouse's profits got a shot in the arm in the third quarter. This was due to higher comparable-store sales, or "comps" (which compare average guest foot traffic and average per-guest spending from a year ago) and the company's share-repurchase plan. 

Total revenue in Q3 was up 14% year over year to $993 million. Comps at company-owned locations (587 of the company's 685 total) increased 8.2% thanks to slightly higher foot traffic and menu price increases to offset inflation. U.S.-based franchised-location comps increased 6.7%. That increase, paired with $213 million worth of share repurchases through the first nine months of 2022, led to an earnings-per-share jump of 24% to $0.93 in Q3.  

In addition to share buybacks, Roadhouse also doled out a $0.46 per-share dividend in the quarter, up 15% from the $0.40 per-share payout the same time last year. The stock has an annualized dividend yield of 1.9% as of this writing.

The case for owning Texas Roadhouse

Texas Roadhouse is nowhere near the fastest-growing restaurant business out there. But that's okay. The company's slow-and-steady expansion in rural and suburban areas of the U.S. has served it well. And what Roadhouse lacks in flashy growth, it has more than made up for in shareholder returns. Dividend payments are up 475% from where they were when a quarterly payout was initiated in 2011.

Will this pace of profitable expansion continue? I believe it will. It appears that peak inflation may be in the rearview mirror for the company. Commodity inflation (for food, paper products, etc.) was 8.8% in Q3, down from a sizzling 14.4% in Q2. Management's early outlook for 2023 is calling for 5% to 6% commodity inflation. That would be good news for profitability, considering Roadhouse has been putting menu price increases in place to help offset rising costs for basic food and products needed to run a restaurant.

Texas Roadhouse is also continuing its measured investment into new-store openings. Of the thirty new locations, most are Texas Roadhouses, but a few are Bubba's 33 sports bars, which the company is still experimenting with now. These openings are planned for 2023. Again, Roadhouse is no hot restaurant concept, but it knows its customers and takes a conservative approach to expansion that won't oversaturate a market with too many steakhouses.  

And then there are the share repurchases, a nice deal-sweetener this year. If the board of directors deems it prudent, these purchases -- which boost earnings per share -- could most certainly continue, albeit at a slower pace. Free cash flow (from which dividends and share repurchases are made) was $221 million in the first three quarters of 2022. The dividend payment alone cost Roadhouse only $93.3 million.

Even after paying the dividend and accelerating its stock buybacks this year, Roadhouse ended September 2022 with $185 million in cash and equivalents and just $75 million in debt. Coming up on its 30-year anniversary, Texas Roadhouse continues to prove the merits of its business model. If a dividend-growth story is what you want, this is a top restaurant stock to buy right now.