Excessive Dividend 50: Wendy’s Firm

Printed on July 18th, 2024 by Bob Ciura

The quick meals trade is a pure supply of dividend shares. By and enormous, quick meals operators take pleasure in the advantages of scale, buyer loyalty, and recession-resistant enterprise fashions.

The sturdy money circulate generated by quick meals shares typically interprets into dividend funds for shareholders.

For instance, Wendy’s Firm (WEN) has a excessive present yield of 5.4%.

Because of this, it’s a part of our ‘Excessive Dividend 50’ collection, the place we cowl the 50 highest yielding shares within the Positive Evaluation Analysis Database.

You possibly can obtain your free full record of all excessive dividend shares with 5%+ yields (together with vital monetary metrics corresponding to dividend yield and payout ratio) by clicking on the hyperlink under:

On this article, we’ll analyze the prospects of Wendy’s inventory.

Enterprise Overview

Wendy’s is the second largest hamburger quick-service restaurant chain within the U.S. with over 7,000 restaurant areas globally. The corporate was based in 1969 in Columbus, Ohio.

Greater than 90% of the corporate’s areas are in the USA.

On Might 2nd, 2024, Wendy’s reported first quarter 2024 outcomes for the interval ending March thirty first, 2024. The corporate’s international system-wide gross sales progress equaled 2.6% in comparison with progress of 10.0% in first quarter 2023.

International similar restaurant gross sales progress of 0.9% in contrast unfavorably to eight.0% in the identical prior 12 months interval. System-wide gross sales of $3.45 billion was 2.5% larger than $$3.36 billion earned in first quarter of 2023.

Supply: Investor Presentation

Out of the 35 complete new restaurant openings within the first quarter, the corporate noticed simply 8 internet new eating places, which compares favorably to final 12 months’s zero internet new eating places on 39 gross new eating places.

The U.S. noticed 2 internet new eating places closed, whereas 10 internet new eating places had been worldwide. The worldwide reimaging of Wendy’s was reported to be 87% full as of 1Q 2024 in comparison with 80% one 12 months in the past.

Adjusted revenues of $430 million for the quarter was up simply 0.6% year-over-year, pushed by an will increase in franchise royalty income and promoting funds income. Adjusted earnings per share for Q1 2024 was 9.5% larger year-over 12 months to $0.23.

Administration reaffirmed its 2024 outlook for system-wide gross sales progress of 5% to six%. Adjusted EPS is forecast in a variety of $0.98 to $1.02. Moreover, the corporate expects free money circulate of round $285 million and capex of $95 million.

Development Prospects

We anticipate Wendy’s to develop earnings-per-share by 12% yearly over the subsequent 5 years. Projected catalysts for this progress embody double-digit internet retailer rely progress, medium-single digit same-store gross sales progress, and share repurchases.

Wendy’s has aggressively repurchased its shares in recent times. Within the final 5 years, it has decreased its share rely by 14%, and within the final 9 years it has decreased it by 43%.

Nonetheless, as Wendy’s has significantly elevated its leverage in recent times, its share repurchases are more likely to decelerate.

Nonetheless, the corporate repurchased 0.4 million shares for $7.2 million in Q1 2024, and has $299 million remaining underneath its share repurchase authorization.

Aggressive Benefits

Wendy’s has a powerful footprint within the U.S. quick meals trade, and enjoys strong revenue margins because of this. Nonetheless, it operates in extremely aggressive trade.

As competitors has solely grown fiercer within the fast-food enterprise in recent times, we imagine the corporate has solely a weak brand-based aggressive benefit.

Wendy’s has a weaker model than its main competitor, McDonald’s. On the similar time, newer ideas are threatening the legacy quick meals operators within the U.S.

One clear advantage of the quick meals enterprise mannequin is that it’s extremely proof against recessions. Customers typically reduce their spending on eating when the financial system enters a recession.

Dividend Evaluation

On January thirteenth, 2023, Wendy’s introduced a 100% enhance of its quarterly dividend to $0.25 per share, though there have been no dividend will increase since. Wendy’s administration has been remarkably shareholder-friendly.

It has drastically decreased its share rely within the final 9 years and had raised the dividend for 10 years earlier than the coronavirus pandemic ended the streak.

Nonetheless, the annualized payout of $1 per share offers a present yield of 5.4%.

Nonetheless, Wendy’s debt degree is a lingering concern for dividend traders. The aggressive share repurchases have taken a toll on Wendy’s steadiness sheet, which has turn out to be fairly leveraged. The corporate is presently leveraged at 5.1x long run debt to trailing adjusted EBITDA.

Administration final talked about their leverage goal to be within the vary of 4.5x to five.5x, which it’s inside. However the firm’s curiosity expense consumed about 32% of working revenue in 2023, which drags on future earnings progress and will restrict the power to lift the dividend.

With a 2024 dividend payout ratio of roughly 100%, Wendy’s dividend is at risk if earnings keep flat or decline going ahead.

Closing Ideas

Wendy’s is an entrenched quick meals restaurant and has constructive progress catalysts, particularly in the case of international enlargement.

That stated, the corporate has a excessive degree of debt, and the dividend payout takes up nearly all the earnings. Due to this fact, Wendy’s is a sexy earnings inventory, however it comes with an elevated degree of threat.

If you’re thinking about discovering high-quality dividend progress shares and/or different high-yield securities and earnings securities, the next Positive Dividend sources might be helpful:

Excessive-Yield Particular person Safety Analysis

Different Positive Dividend Sources