A Dividend Growth Stock You Likely Haven’t Considered
Today I’m highlighting a company that has been giving income investors massive “pay raises,” Restaurant Brands International Inc (NYSE:QSR).
As the name suggests, Restaurant Brands International is in the restaurant business. The company was formed in 2014 by the merger between American fast food chain Burger King and Canadian coffee shop/restaurant chain Tim Hortons. In 2017, the company expanded its presence by acquiring Popeyes Louisiana Kitchen.
Headquartered in Toronto, Ontario, Canada, Restaurant Brands International is now one of the largest owners and operators of fast food restaurants in the world. The company currently has more than 25,000 restaurants in more than 100 countries around the world.
Income investors are no strangers to restaurant stocks. In particular, because some of the big-name fast food chains have been running solid operations for decades, they have also managed to pay a generous dividend.
What makes QSR stock stand out is the recent growth in its payout. You see, because the most well-known quick-service restaurants are also some of the most established players in the industry, the growth rates in their financials tend to slow down as their business matured. And in turn, that slower growth often translates to smaller dividend hikes as time passes.
Not at Restaurant Brands International, though. While the company’s restaurant chains are all decades old (the youngest one is Popeyes, which has been around since 1972), it has managed to deliver massive dividend increases in recent years.
In 2015, Restaurant Brands International declared total dividends of $0.44 per share. In 2018, that amount had grown to $1.80 per share. That is, in just three years, QSR stock’s dividend has more than quadrupled. (Source: “Restaurant Brands International Inc. Dividend Date & History,” Nasdaq, last accessed June 7, 2019.)
The company didn’t just stop there. This January, the board of directors approved a quarterly dividend rate of $0.50 per share. So the company is on track to pay total dividends of $2.00 per share for full-year 2019, which would mark another 11% increase from the $1.80 per share it paid for 2018. (Source: “Restaurant Brands International Announces Exciting Leadership Changes, Pre-Releases Fourth Quarter and Full Year Comparable Sales and Net Restaurant Growth, Announces Dividend Increase and First Investor Day Conference,” Restaurant Brands International Inc, January 23, 2019.)
Restaurant Brands International Inc Dividend History
(Source: Nasdaq, op. cit.)
The big question now, of course, is whether the company can actually afford all those dividend hikes. To find out the answer, let’s take a look at QSR’s financials.
In 2018, Restaurant Brands International’s system-wide sales grew 7.4% year-over-year. This was mainly driven by the opening of additional restaurants. On a comparable basis, the company’s same-store sales increased two percent at Burger King, 1.6% at Popeyes, and 0.6% at Tim Hortons. (Source: “Restaurant Brands International Inc. Reports Full Year and Fourth Quarter 2018 Results,” Restaurant Brands International Inc, February 11, 2019.)
At the bottom line, the company’s adjusted earnings came in at $2.68 per diluted share in 2018, marking an impressive 27.6% increase from the prior year. Note that, since the company paid total dividends of $1.80 per share for 2018, it achieved a payout ratio of 67.2%.
Fast-forward to this year, we see that the restaurant giant’s business has continued to expand. In the first quarter of 2019, system-wide sales improved by another 6.4%. Again, the strong results were driven by the addition of new restaurants in its portfolio. Comparable restaurant sales, on the other hand, were up 2.2% at Burger King and 0.6% at Popeyes. Tim Hortons, however, reported a 0.6% comparable sales decline.
Still, the dividend policy remains safe. In the first three months of 2019, Restaurant Brands International earned an adjusted net income of $0.55 per share for the quarter, which easily covered its quarterly dividend payment of $0.50 per share. (Source: “Restaurant Brands International Inc. Reports First Quarter 2019 Results,” Restaurant Brands International Inc, April 29, 2019.)
Unsurprisingly, the company’s growing business and continuous dividend increases have cheered up investors. Over the past three years, Restaurant Brands International stock has surged more than 60%.
Restaurant Brands International Inc (NYSE:QSR) Stock Chart
Chart courtesy of StockCharts.com
The Bottom Line on QSR Stock
Here’s the neat part: due to the sheer size of its dividend hikes, Restaurant Brands International stock can still offer a decent yield despite its impressive rally. Trading at $66.62 per share, Restaurant Brands International Inc currently provides investors with an annual yield of three percent.
While you can find plenty of stocks with much higher yields, keep in mind that, right now, the average dividend yield of all S&P 500 companies is just 1.9%. (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed June 7, 2019.)
The fast food industry is nothing new, but Restaurant Brands International managed to churn out some very impressive growth rates from this decades-old business model. Given management’s willingness to return profits to shareholders, I expect QSR stock to deliver more dividend hikes down the road.