Darden Restaurants (DRI) The operator of full-service restaurants including Red Lobster and Olive Garden has delivered a double-digit second-half raise to its shareholders each of the last six calendar years. Since switching to a quarterly payout in 2007, the company has announced its annual increase within its fourth quarter earnings release, which will follow the closing bell on June 30 this year. (So in all likelihood, this “July” dividend hike will come one day early.)
Darden has certainly put a much larger emphasis on its dividend over the last five years, returning 29% of its earnings to shareholders (compared to just 5% during the prior five years), including an all-time high of 35% in 2010. The company nearly tripled its earnings per share during the last decade, so it took some serious dividend growth to pull that off. Like, 2300% dividend growth: Darden barely distributed a measly nickel per share to investors in 2001, and now pays an annual rate of $1.28 per share.
Important Stats: 33.6% forward payout ratio, six year dividend growth streak, last five dividend hikes have averaged 27% and ranged between 11% (2008) and 57% (2007).
Forecast: An increase of 10-20%. I think Darden’s dividend is about to start growing at a pace more comparable to its earnings. The company will definitely keep its double-digit streak alive, but anything above this range would be pretty aggressive, pushing its forward payout ratio well above 40%. McDonald’s (MCD) can get away with its 44% forward payout ratio because it has less growth to fund, has the scale to expand more efficiently, and can raise prices without denting its teflon brand equity. Darden probably wants to be somewhere between the golden arches and Yum! Brands (YUM), which currently returns just 31% of future earnings to its shareholders.