Tuesday, September 11, 2012

Eat your way to income Darden (DRI) Dividend Machine for week of 9/10/2012

The company's former logo, used until 2009The company's former logo, used until 2009 (Photo credit: Wikipedia)
My Dividend Machine for week of September 10, 2012 is Darden Restaurants (DRI)

            Each week I search for a company that meets all four of my criteria for inclusion into the Dividend Machines List.  I do not always like what I find.

            This week I found Darden Restaurants, symbol DRI.  Darden meets all four criteria for inclusion in my 2012 dividend machine list just as it did in 2011.  

          Here are DRI’s fundamentals:    Yesterday DRI closed at $53.94 with a current annual dividend of $2.00 per share, which makes their dividend yield 3.7%.   Darden earned $3.57 per share during the last four quarters and paid out $1.79 in dividends.  DRI’s D/E ratio is 100% which is high but within industry standards (EAT carries a similar debt to equity ratio.)  Clearly, DRI makes more money than it pays out and it has for years.  While DRI has raised the dividend every year for 6 years, it did reduce the dividend in 2007. 

           This dividend project, as you know, sticks with four criteria for inclusion into the dividend machine club and makes no distinction between companies that have raised for 40 years and those, like DRI, that have raised for only 6 years.  Some might argue that reducing the dividend is good fiscal management.  Others argue that when cash flow is good (as it has been with DRI over the at least the last 10 years), there is no reason to punish the investor with a reduction in the dividend.  But DRI can be volatile and perhaps in that volatility we may find covered call income opportunity.  Today I did not find covered call opporunty.

          Here is my problem with DRI, the company website tell us many stories about their progress on people fronts.  They also mention financial fronts.   I like a company that focuses on my income growth.  It takes forever just to find their dividend history.  While DRI talks about people fronts, they deliver on their dividend increase and at a very healthy clip so perhaps I should not read their corporate mission statement and concentrate on their income statement.

          If you want to make your investment decisions based on the company’s statement or the delivery of their income is up to you, but DRI clearly meets all the criteria for inclusion in the dividend machine list.   For those of you who used DRI as a dividend machine in 2011, (see original post http://www.themoneymadam.com/2011/11/dividend-machine-for-november-7-2011.html you have been handsomely rewarded.  You can sell a call at $55 for about $.80 that would be a very nice gain.   Maybe next year the 2012 investors will be just as lucky.

Very Truly Yours,


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