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This has been a year to forget for casual restaurant Chipotle Mexican Grill (NYSE: CMG). The stock has lost 45% of its value over the past 12 months, after its highly-publicized E. coli scare.v That caused Chipotle’s image with consumers to take a huge hit, and the company has struggled to restore trust with its customers.
As a result, Chipotle’s sales are falling off a cliff. Comparable sales, a hugely important measure for restaurants that shows sales results at locations open at least one year, dropped more than 20% last quarter alone. This is a massive drop and is indicative of how badly things are going for Chipotle right now.
To get things turned around, Chipotle is turning to a variety of promotions, mostly involving free food giveaways. But customers simply aren’t returning to Chipotle.
For these reasons, these three competitors to Chipotle may be better stocks to buy thanks to their relative lack of headline risk, steady earnings growth, and attractive dividend yields.
Restaurant Dividend Stocks: Jack in the Box (NASDAQ: JACK)
Jack in the Box is arguably the biggest beneficiary of Chipotle’s downfall. That is because Jack in the Box operates the Qdoba restaurant chain, which competes directly with Chipotle in the casual Mexican fare segment.
To put it bluntly, Chipotle’s pain is Qdoba’s gain. Jack in the Box shares have soared 28% year-to-date, largely because of its success at Qdoba. Qdoba’s company-wide same-store sales increased 1% last quarter, due to a 0.4% increase in customer transactions and the benefit of growth on the catering side of the business.
Overall, Jack in the Box’s operating earnings per share rose 20% through the first three quarters of the fiscal year.
Jack in the Box’s high growth is flowing through to its shareholder payouts. The company offers a 1.2% dividend yield, which is below the S&P 500 average yield, but Jack in the Box makes up for this with rapid dividend growth. For example, the company raised its dividend by 50% last year, and may continue to raise its payout at high rates if it continues to capture market share from Chipotle.
Restaurant Dividend Stocks: DineEquity (NYSE: DIN)
DineEquity operates Applebee’s and IHOP restaurant chains. It is not a direct competitor to Chipotle but it gets a nod here because it screens much better for value and income than Chipotle. Despite Chipotle’s stock price drop over the past year, at $400 per share it still trades for more than 50 times trailing EPS.
By contrast, DineEquity has a trailing P/E of 14 and a forward P/E of 12. Sentiment is slightly bearish on the company right now because its total sales fell 7% last quarter. But one quarter does not make or break a company, and DineEquity’s track record of producing growth over the past few years is impressive.
That is because it has aggressively refranchised its restaurants. This is a lucrative strategy because it results in a more consistent flow of royalties while also placing most of the renovation and maintenance expenses onto the franchisee.
Because of this, DineEquity grew free cash flow by 18% in 2015. Its strong cash flow allows the company to pay a hefty 4.7% dividend, which is very attractive for dividend investors.
Restaurant Dividend Stocks: Brinker International (NYSE: EAT)
Brinker owns the Chili’s Grill & Bar and Maggiano’s Little Italy brands. It has struck a chord with value-conscious customers. Brinker generated at least 10% earnings growth for five years in a row, including 12% earnings growth last year, along with 9% revenue growth in 2015.
With such strong earnings growth, Brinker rewards shareholders with compelling dividend growth. The company raised its dividend by 6% this year, and in the last five years, has raised its dividend payout by double-digits each year on average.
This restaurant dividend stock has a trailing P/E of 15 and a solid 2.7% dividend yield. That makes Brinker is an enticing opportunity for value and growth.