Cracker Barrel, A Cheap Dividend Grower

While the declining price of oil isn’t unequivocally good for everyone, there’s one trend that’s worth noting.

You see, according to LPL Financial Research, consumer discretionary stocks have outperformed the S&P 500 by 11% during oil’s biggest declines over the last 25 years.

Better yet, they’ve outperformed the S&P by an additional 7% in the three months following the bottom in oil prices.

Given that – and keeping in mind America’s insatiable appetite for home-style cooking – I’m convinced there are good times ahead for a particularly well-positioned restaurant chain…

The eatery in question is none other than roadside standard and griddle pancake extraordinaire, Cracker Barrel (CBRL).

This restaurant, which boasts honest-to-goodness, home-style meals prepared from scratch, is an attractive opportunity right now for a number of reasons.

For starters, it appears that entrees such as chicken-fried chicken are in high demand…

In the first quarter of 2015, Cracker Barrel saw comparable store traffic increase almost a full percent compared to the first quarter of 2014. That means more customers sitting down to a hearty, all-American meal.

It’s no coincidence that driving traffic happens to be the company’s top business priority for this fiscal year.

Meanwhile, comparable restaurant sales increased by 3.3% while retail sales jumped by 6.1% (seems people can’t get enough of the old country store’s tchotchkes).

On top of that, same-store sales rose 2.2% over the previous year, and check averages increased by a solid 2.7%, as well.

Finally, CBRL announced in its latest earnings report that it was raising its full-year earnings guidance. That’s a strong outlook considering the company has beaten earnings estimates for the last 14 quarters and counting.

A Dividend Grower Trading at a Discount

Of course, strong demand is just the beginning – and is hardly CBRL’s most attractive feature. Rather, strong dividend growth is what makes this stock so intriguing.

Currently, CBRL pays a $1 quarterly dividend for a 3% yield – which is one of the highest among U.S. restaurants (and also a good 50% above the group’s average).

That payout should only be getting bigger, too, as management has a solid record of providing shareholders with annual raises. After all, the dividend payout has increased by 33.3% over the past year and a juicy 300% over the past three.

In fact, Cracker Barrel boasts one of the fastest five-year dividend growth rates among U.S. restaurants (not to mention that management has hiked the payout for five consecutive years now). And with more than enough free cash flow to cover the dividend, the company looks positioned to keep the upward trend going.

Of course, the only thing better than a dividend grower is a cheapdividend grower. And Cracker Barrel qualifies as that right now.

The company’s enterprise value-to-EBITDA ratio (EV/EBITDA) of 12.0x is well below the industry average of 15.0x. The same holds true for its price-to-earnings (P/E) ratio, which, at 22.49, beats the pants off of the average for U.S. restaurants (32.89).

Even on a price-to-sales (P/S) basis, CBRL clocks in at a substantial discount to the rest of its peers.

Bottom line: Cracker Barrel is trading at a discount based on almost every valuation metric out there, making it an attractively priced dividend grower. So go ahead… treat yourself to some country-fried steak (and a few CBRL shares, as well).

Good investing,

Chris Worthington