The restaurant business is showing signs of a comeback, but higher labor and food costs could significantly reduce yields.
This is the point of view of Jonathan Heller of TheStreet, writing in Real Money. “We had another sign of a potential return to normalcy in the restaurant business on Thursday when McDonald’s took some steps to return more capital to shareholders,” Heller said. “First, McDonald’s increased its quarterly dividend by 7% to $ 1.38 per share, which equates to a return of 2.25%. Second, the company has relaunched the $ 15 billion share buyback program it suspended in 2020. ”
McDonald’s has also maintained its status as a dividend champion and increased the dividend at a compound annual growth rate of 7% over the past 10 years.
Heller also likes the restaurant industry as a whole, which is back after 18 months of pandemic shutdowns. “The sector has continued to perform well since the start of the year, with a basket of more than 40 restaurant names with market capitalizations over $ 100 million, an average increase of 39.5% versus 19.7% for the S&P 500, 15.2% for the Russell 2000 index and 24.5% for the Russell Microcap index, ”he says.
Heller also lists its inventory of current “Big Five” restaurants – a self-created group that includes McDonald’s (up 16% year-to-date), Chipotle Mexican Grill (up 40%), Yum Brands ( up 16.5%), Domino’s Pizza (up 29%) and Darden restaurants (up 36%) – are now up 27.5% on average since the start of the year.
The worst player in the industry right now is newcomer BurgerFi International (BFI) (down 34% year-to-date), which went public last December after it was acquired by the company of Special Purpose Acquisition Opes Acquisition, ”he said. “BurgerFi is known for using Grade A Angus beef in its burgers; it has 118 locations (22 company-owned and 96 franchisees) in 22 states by my count. I have to admit I’m hungry as I write this, and I believe there’s a BFI location handy, so I’ll give it a try. I’ll let the dust settle on the stock, however, at this point. “
Heller’s concern for the industry remains rising labor and feed costs. “There is still pent-up demand among consumers to eat out of the home, but I don’t know what the appetite will be if menu prices continue to rise,” he added.
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This article was originally published by The street.