Wonders will never cease.
Last night I was able to get two of our kids to accompany Dad to Cracker Barrel (CBRL) , my favorite casual dining restaurant. As I looked around the place, I was explaining to them the potential value of all of the old vintage signs, photos and other decorations hanging on the walls, especially given Cracker Barrel's more than 600 locations. Indeed, the company has a warehouse filled with thousands of vintage items and a "décor manager."
However, that treasure trove is just the tip of the iceberg for what quietly has been an extremely successful chain. Shares have more than tripled over the past five years and are up more than ten-fold since the 2008 market debacle. The chain is approaching $3 billion in annual sales and likely will get there in 2018.
Cracker Barrel has become a dividend champion of sorts. It returned $7.85 per share to shareholders over the past year in the form of quarterly $1.15 dividends and a special $3.50 dividend paid last July, all of which equates to a 4.7% yield. Last week, the company raised the quarterly dividend 4% to $1.20 and this year will pay a special dividend of $3.25 a share. That puts the indicated dividend yield at 4.9%, including the special dividend.
Cracker Barrel has taken its share of potshots, most recently a few years back when activist investor Sardar Biglari of Biglari Holdings (BH) amassed a 20% stake in CBRL, waged a proxy fight and sought board seats and changes at the company. Biglari was upset with how Cracker Barrel allocated capital, among other things. His proxy fight failed, yet Biglari Holdings has kept its stake and reaped the rewards of both dividends and capital appreciation in the stock.
As a Biglari Holdings stockholder who increased my stake in order to gain exposure to Cracker Barrel more cheaply than buying shares outright, I would have been much better off buying Cracker Barrel directly. Ironically, Cracker Barrel, the target of an activist who questioned its efficiency, has wildly outperformed Biglari Holdings. However, Biglari Holdings has been laughing all the way to the bank, collecting an estimated $37 million in dividends from Cracker Barrel over the past year alone.
In an era where restaurants are moving away from owning their real estate and company-owned locations -- as evidenced by recent events at Buffalo Wild Wings (BWLD) , where activist Marcato Capital won the proxy fight -- Cracker Barrel is one of the exceptions. The company owns more than 400 of its locations yet has a modest debt load at $400 million. It's a potentially valuable real estate portfolio. In 2009, when the company engaged in a sale/leaseback transaction for 15 locations, it received nearly $3 million per store in proceeds.
Just where Cracker Barrel shares head from here remains to be seen. The shares currently trade at about 19x next year's earnings, which is not exactly cheap in an industry that is facing challenges. While the dividend should help put a floor on the share price, part of the payout is a special dividend, and although this is the third consecutive year Cracker Barrel has paid it, there are no guarantees it will continue.
But who knows? I didn't think Cracker Barrel would ever open a location in California -- a state where a company executive told me years ago that they could not imagine playing well in -- but that is scheduled to happen later this year in Victorville, just outside of Los Angeles. That leaves, by my count, Hawaii, Wyoming, Washington, Alaska and Vermont as the only states without a CBRL restaurant.