The parent company of Applebee’s is in real trouble.
DineEquity (DIN), the $1.6 billion owner of chains like Applebee’s and IHOP, is struggling under the weight of its own poor decisions. The business’s fundamentals are deteriorating. Its franchises are struggling. To make matters worse, aggressive discounting, like the “buy one, get one free!” campaign, are exacerbating existing woes. This promotion “reeks of desperation.”
Wait, there’s more. A dividend cut may be coming.
Hedgeye Restaurants analyst Howard Penney is bearish on the company and recently hosted a conference call laying out his short thesis. “There’s just not a lot of money for them to spend to fix the business,” Penney says.
At the same time, DIN needs to put more dollars in the bank. “I think Applebee’s needs to put dollars in the bank because they need to support their dividend and their 62% dividend payout ratio," Penney says. "If you look at the net income less dividends that’s eroding pretty quickly.”
In the video excerpt above, Penney makes a compelling case for why a dividend cut is on the horizon. “The only thing keeping this stock where it is today is the dividend and the 4.6% dividend yield,” he says.
In other words, if the dividend gets cut, look out below.