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Passive Income: This Canadian Dividend Stock Looks Severely Undervalued

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Passive-income investors still have plenty of options, with numerous Canadian dividend stocks that still seem severely undervalued given the economic reopening trajectory.

Sure, the TSX is getting a tad frothy, but don’t think for a minute that Mr. Market isn’t mispricing shares of wonderful businesses to the downside. In some instances, Mr. Market is making a complete blunder. Many of the bargains are hiding in plain sight on the TSX Index!

One of the biggest blunders made by Mr. Market is with shares of Restaurant Brands International (TSX:QSR)(NYSE:QSR), the Canadian fast-food firm behind Tim Hortons, Popeyes Louisiana Kitchen, and Burger King. The company doesn’t get the respect it deserves from Canadian investors, and I think it’s in large part due to the lacklustre performance of Tim Hortons over the years.

Three powerful brands and one severely undervalued Canadian dividend stock

While Tim Hortons has struggled to live up to the hype, I think it’s a mistake to throw in the towel ahead of the great reopening of 2021. Tim Hortons had salt rubbed in its wounds when lockdowns struck last year. And when restrictions lift and Canadians return to their favourite dining rooms, Tim Hortons is one chain that could have the most to gain.

Coffee and doughnuts aren’t typically something one would be inclined to order through a delivery service. Double-doubles and a side of Timbits are best enjoyed sitting down with a copy of the daily newspaper or between breaks at the office. As a flood of Canadians head back to work, and the nation moves closer to eliminating COVID-19, I think Tim Hortons can and probably will make up for lost time.

Tim Hortons has been weighing down Restaurant Brands stock for quite some time. While the chain comprises a meaningful chunk of overall revenues, I wouldn’t discount the growth in Restaurant Brands’s other two chains, which, I believe, will contribute a larger slice of the overall revenue pie over time.

Big changes are coming!

Burger King recently got a big rebrand. The chain is going retro with its new logo. But it’s not just the logo and packaging that’s getting a big change; its many outdated restaurants are getting modernized with compelling technologies. Add new menu items, like Nashville Hot Chicken burgers, which, in many ways, rhyme with Popeyes’s groundbreaking chicken sandwich, and I think Burger King could drive huge growth for Restaurant Brands in the post-COVID environment.

Finally, we have Popeyes, the smallest, but most impressive chain under the Restaurant Brands umbrella. The company fell under the international spotlight and it could take the world by storm, as Restaurant Brands looks to expand the wildly popular chicken chain into new markets. With Popeyes, Restaurant Brands has a passport to explosive international growth in one of the hottest fast-food segments on the planet. So, while Popeyes contributes a small slice of the QSR pie today, I do see the slice growing at the quickest rate.

Foolish takeaway

In short, you’re getting three great brands with impressive growth runways on the other side of this pandemic. The stock sports a juicy 3.3% dividend yield and a price of admission that’s far more attractive than most other plays in the quick-serve restaurant space. Shares plunged 5% over the past week, and for no good reason. Now down 24%, I’d look to back up the truck before the great reopening can propel shares above the $100 mark.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Restaurant Brands International Inc. The Motley Fool recommends Restaurant Brands International Inc.

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