1 Future TSX Dividend King Worth Buying Right Now

Restaurant Brands International (TSX:QSR)(NYSE:QSR) is a future dividend king that many Canadian income investors are sleeping on!

| More on:
Golden crown on a red velvet background

Image source: Getty Images

When it comes to future TSX dividend kings, it’s hard not to think about battered fast-food behemoth Restaurant Brands International (TSX:QSR)(NYSE:QSR), which not only has a bountiful upfront dividend yield of 3.3% but a means to grow it consistently at an above-average rate over the long term.

The business of fast food and quick-serve restaurants is simple enough.

Undoubtedly, they provide a means for investors to get consistent quarterly payments and annual raises, with less regard for how the broader economy fares. When it comes to Burger King and Popeyes Louisiana Kitchen, two of the three top brands under Restaurant Brands, a recession may actually beef up (no pun intended) sales and earnings growth.

COVID-19 delivers a left hook straight to the TSX dividend king’s chin

The pandemic was a different beast, though. COVID-19 lockdowns caused restaurants to take a massive hit to the chin. Many restaurant owners never saw it coming. For the big-league restaurants with strong balance sheets, the pandemic wasn’t nearly as bad as it could have been. Restaurant Brands wasn’t nearly as agile as the fast-food leaders in 2020. And the nature of its Tim Hortons brand (people don’t normally have coffee delivered to their homes) made it difficult for the firm to adapt in an era dominated by drive-thru and delivery.

Once this horrific pandemic ends, so too will the overhang on Tim Hortons and Restaurant Brands stock. All the while, the company is funneling money in modernization initiatives that should better prepare it for the next pandemic, or future resurgences of COVID-19 variants of concern. Restaurant Brands is reinventing Burger King, with new store layouts and a fresh new (or should I say old) logo and a slate of new and tasty product offerings.

As Burger King and Tim Hortons look to play catch-up to their industry peers and Popeyes Louisiana Kitchen, the strongest of QSR’s three brands, I think things will be looking up for shares of the beaten-down Canadian dividend-growth stud.

What about valuation?

At the time of writing, QSR stock trades at 5.9 times sales and 37.6 times trailing earnings, with a 1.18 beta, which means shares are just a tad more volatile than the broader equity markets. The valuation seems steep, but the pandemic’s impact is clouding the real value to be had in the name.

Once COVID-19 is conquered, Restaurant Brands strikes me as one of the fast-food plays with the greatest upside. At the same time, I view the stock as having far less downside risk than some of the more aggressive reopening plays that are not ready for more waves of COVID-19 lockdowns.

Moreover, I find many investors are underestimating the capabilities of management. It’s easy to dismiss QSR as the firm behind the struggling Tim Hortons chains, which have seen brutal same-store sales comps for quite some time. But if you look at Tim Hortons as more of a turnaround play led by the managers behind the profound industry breakthrough that is Popeyes, only then does it become apparent that QSR stock is actually a severely undervalued play with one of the better margins of safety out there in today’s expensive market.

Once the company’s sales get back into high gear, prepare for dividend hikes from the TSX dividend king in the making.

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.

More on Dividend Stocks

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »