Here's Why I'm Considering The Wendy's Company As An Income Driven Play

As an income-driven investor who doesn't mind the occasional conservatively-yielding dividend play, I've decided to shift my focus to the quick service restaurant sector and highlight several of the reasons behind my decision to remain bullish on shares of The Wendy's Company (WEN).

#1: Recent Performance & Trend Behavior

On Friday, shares of WEN, which currently possess a market cap of $3.41 billion, a forward P/E ratio of 29.62, and a dividend yield of 2.30% ($0.20), settled at a price of $8.68/share. Based on their closing price of $8.68/share, shares of WEN are trading 1.94% above their 20-day simple moving average, 1.55% above their 50-day simple moving average, and 23.29% above their 200-day simple moving average. These numbers indicate a short-term, mid-term, and long-term uptrend which generally translates into a near-term buying mode for traders and a moderate buying mode for longer-term investors.

(click to enlarge)

#2: 5-Year Dividend Behavior

Since November 26, 2008, the company has increased its quarterly distribution three times in the last five years, with the most recent increase having taken place in May of this year. The company's forward yield of 2.30% ($0.20) coupled with its ability to maintain its quarterly distribution over last five years, make this particular restaurant play a highly considerable option, especially for those who may be in the market for a conservative stream of quarterly income.

(click to enlarge)

#3: Comparable Dividend Growth

Not only does the company's 2.30% dividend yield and 5-year dividend behavior make this particular stock a highly attractive option for most income-driven investors, its dividend growth over the last five years versus one of its sector-based peers is also something investors should almost certainly consider.

From a comparable standpoint, WEN's dividend has grown a solid 233.3% over the past five years, whereas the dividend growth of its sector-based peer McDonald's (MCD) had only increased 62% over the same period.

(click to enlarge)

#4: Looking Ahead To Q4 Earnings

If we begin to look ahead to the company's Q4 earnings estimates, in which analysts are calling for WEN to earn $0.06/share in terms of EPS (which is $0.02/share lower than the company had reported during Q3) and $617.65 million in terms of revenue (which is $23.15 million lower than the company had reported during Q3), I suspect most investors would like to see an improvement over the company's Q3 results which came in at $0.06/share in terms of EPS and $640.8 million in terms of revenue.

If the company can demonstrate an increase of 175-to-225 basis points in terms of its restaurant margins, and average same-store sales growth of 2.25%-to-$2.75%, I see no reason why such EPS and Revenue estimates can't be met or even exceeded when the company announces its Q4 results sometime in mid-January.

Risk Factors (Most Recent 10-K)

According to the company's most recent 10-K there are a number of risk factors investors should consider before establishing a position Wendy's. These risk factors include but are not limited to:

#1 - Wendy's financial results are affected by the operating results of our franchisees.

#2 - The company's growth of its restaurant businesses is dependent on new restaurant openings, which may be affected by factors beyond its control.

#3 - The company's failure to drive both short-term and long-term profitable sales growth through brand relevance, operating excellence, and the opening of new restaurants under its Wendy's brand could result in poor financial performance over the next several years.

Conclusion

For those of you who may be considering a position in Wendy's I'd keep a watchful eye on a number of things over the next 12-24 months as each could play a role in both the company's near-term and long-term growth.

For example, near-term investors should focus on the recent performance and trend behavior of the company while longer-term investors should focus on the company's upcoming Q4 earnings as well as its ability to continuously increase its dividend on an annual basis as has been the case over the five years.

Source: Here's Why I'm Considering The Wendy's Company As An Income Driven Play

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WEN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.