Activist Investor Wants IHOP Parent to Suspend Its Dividend. The Stock Yields 9.5%

Coming into Monday trading, Dine shares were down 29% this year. (Justin Sullivan/Getty Images)

Applebee’s and IHOP parent Dine Brands now has an activist investor pushing for changes. Those changes include eliminating the dividend.

Monday, The Edge Consulting Group proposed a three-pillar plan to “unlock 150-200% shareholder returns over the next 24-36 months.”

“Without urgent structural change, Applebee’s and IHOP will continue down the same path as TGI Friday’s—brand decay, market irrelevance, and shareholder value destruction,” wrote Edge founder Jim Osman in a letter to management. He says his firm has amassed about a 1% stake in the company.

The Edge Group, which specializes in research on special situations like corporate spin offs and restructurings, wants the company to suspend the dividend, sell its Fuzzy Taco brand, and refinance $500 million in debt.

That’s step one. Dine ended the second quarter with about $1.1 billion in long-term debt. The company is projected to generate 2025 earnings before interest, taxes, depreciation, and amortization, or Ebitda, of about $220 million. That’s a lot of long-term debt for that level of earnings. Companies in the S&P 500 often have debt-to-EBITDA ratios of less than two times. Coming into Monday trading, shares yielded almost 10%.

Dine pays a dividend of 51 cents per quarter. Annually, that costs the company about $31 million. The company is expected to generate 2025 free cash flow of about $78 million, according to FactSet.

Steps two and three include simplifying the menus and adding new board members while launching a “Franchisee Advisory Council with performance-linked incentives.”

Dine didn’t immediately respond to a request for comment about the plan.

Dine stock rose 1%, closing at $21.59 on Monday, while the S&P 500 finished flat and the Dow Jones Industrial Average dropped 0.1%. Coming into Monday trading, Dine shares were down 29% this year and down 34% over the past 12 months.

Shares fell 6.4% after the company reported second-quarter earnings per share of $1.17 earlier this month. Wall Street was looking for EPS of $1.45.

Overall, one out of seven, or 14%, of analysts covering Dine stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Dine is about $24 a share.

Write to Al Root at allen.root@dowjones.com