Tickers in this Article: IYK, MRT, PBJ, K, BAGL, BOBE, DENN, PFCB, EAT, XLY
With every good bit of economic news, the U.S. consumer seems to get a little bit stronger. While things aren't back 100%, the situation is looking up. ETFs like iShares Dow Jones US Consumer Goods (NYSE:IYK) have recovered over the last year as investors have sought exposure to the returning consumer. Often leading in an economic recovery, restaurant stocks currently offer value and high dividends for investors.

TUTORIAL: Economic Indicators To Know

Dining a la Carte
The restaurant sector has experienced a major turnaround over the last year. As consumers have become more comfortable with their budgets and employment situations, dining out has become an attraction once again. That increase in spending has resulted in big profits for the group. Sales and earnings have steadily risen from 2009's recessionary lows, and higher traffic is driving high single-digit gains in same-store sales. Any continued gains in employment and the recent tax cuts should also help buoy the sector.

The sector is also performing well in spite of rising commodity costs. Since the summer, prices for many staple ingredients such as coffee, sugar, corn and wheat have risen by more than 50%. However, analysts estimate that restaurateurs could potentially post double-digit returns in 2011 as the economy continues to improve and also by passing on marginal price increases to consumers. Super-discounting and "2 for $20" deals should give way in the face of strengthening economy. In addition, various new branded product lines for the home "chef" are breathing new life into some restaurant stocks. These efforts will help boost dining stocks bottom lines and add a level of protection if consumers begin eating in again.

However, given the huge run-up in discretionary names not all restaurant names are offering value. Some restaurants and individual brands have used the recessionary downturn to scrutinize and perfect their businesses. Others, like Morton's (NYSE:MRT), have continued to struggle. By focusing on the stable brands and companies within the industry, investors can steer clear of the potential minefields and earn some stable dividends as well.

Ordering a Blue Plate Special
With casual dining returning to prominence, investors may want to consider adding the sector. The PowerShares Dynamic Food & Beverage (NYSE:PBJ), while not a pure play as it has holdings in package food companies like Kellogg's (NYSE:K), could be used as overall way to add exposure to the industry. Nonetheless, better opportunities and bigger dividends exist in individual names.

Offering a 3.2% yield, Einstein Noah (Nasdaq:BAGL) is an interesting take on the growth in quick service restaurants (QSR). These establishments have no servers and are perceived to offer better food quality and a better experience than traditional fast food. The stock recently reported better than expected earnings and has rallied more than 60% since the summer. However, shares trade at forward P/E of just 15.

Serving Food at A Country Pace
Bob Evans Farms (Nasdaq:BOBE) is one restaurant stock benefiting from the branding of home products. In addition to operating nearly 715 restaurants, the company also sells a variety sausages and packaged food items in grocery stores. Bob Evans has slowly raised menu prices to help offset higher food costs and is on track to meet 2011 profit guidance. Shares of Bob Evans yield 2.5%, besting breakfast rival Denny's (Nasdaq:DENN) yield of zero.

Finally, for those investors looking for both growth and a dividend, the terracotta warriors at P.F. Chang's China Bistro (Nasdaq:PFCB) are currently offering a 2.6% yield. The firm's dividend was only instituted in the summer and has been variable, dropping in November only again to rise with its last payment. The company has also begun expanding in Canada, where the strong loonie should help its bottom line and allow PFCB to smooth out payments to shareholders.

The Bottom Line
The restaurant sector is often one of the first leaders out of a recession and has recently posted increased gains in same store sales and higher foot traffic. By focusing on those in the sector with high dividends and strong franchises like Brinker International's (NYSE:EAT) Chili's, investors can profit throughout the continued expansion and have a margin of safety. (For related reading, also take a look at Top Dividend Plays For 2011.)

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