In short: Her textbook "smell test" failure: a 7–8% yield that earnings technically covered, but earnings were falling "over and over," the business "clearly not that thriving," and the market wasn't rewarding the payout. "Sure enough they cut the dividend" (about a year ago).
Wendy's is the fast-food burger chain. Before it cut its dividend (about a year ago, by her recollection), the stock yielded around 7–8%. On paper the company still earned enough to pay it, so a simple "is the dividend covered?" check would have passed.
Harrington's point is that numbers alone can mislead, so run a "smell test." Earnings had been falling "over and over," the business wasn't growing, and investors weren't rewarding the big payout. That combination made the high yield a warning, not a bargain, and the cut followed. Her rule of thumb: be skeptical of any yield above about 7% in a struggling industry, and "frankly skeptical over five."
19:00And when I think about that, I think about Wendy's. Where Wendy's, when did they end up cutting? Like a year agoish. Before they cut, they had a big dividend, like an 8% or 7%. And they technically speaking had the earnings to cover it, but it didn't make sense, and you're like, I don't get it.
In short: Part of Terranova's "universal" exhibit. "McDonald's, Shack, Wendy's, it's universal across the board. I think you can even throw up Domino's, DPZ." His point is that the weakness is not company-specific, which is why he reaches for a demand-side explanation the desk has not used before: "I don't hear anyone present the reasoning that potentially these GLP-1s are contributing to quick serve not seeing the type of demand that it saw 5, 6, 7 years ago."
Wendy's is one of the names Terranova lists to make a statistical point rather than a company one. If McDonald's, Shake Shack, Wendy's, Domino's and Chipotle have all traded badly for years, the explanation probably is not five separate management problems.
His candidate explanation is that GLP-1 weight-loss drugs have reduced how much fast food people buy — a change in demand that no individual chain can fix by operating better. It is a hypothesis, and he says plainly that he has not heard anyone else make it.
In short: A new potential deal on the tape, noted without a view: "Nelson Peltz's Trian Management is reporting a potential take private of Wendy's."
Full passage: premium transcript (PDF).
In short: #19, yield 6.6%. "The world's third-largest quick-service hamburger company," with "the vast majority of its thousands of locations… operated by franchisees, creating a high-margin royalty model." Growth from international expansion, technology (mobile ordering and loyalty "increasing how often customers buy, and average ticket sizes"), and "between a high dividend yield and consistent buybacks, the company is focused on returning cash to owners." Note what is not addressed: a 6.6% yield on a quick-service franchisor implies the market doubts the payout.
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