A Canadian Dividend Stock to Hold Forever in Your TFSA

Here’s why Restaurant Brands International is a top TSX dividend stock TFSA holders can buy right now.

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The Tax-Free Savings Account, or TFSA, is ideal for holding blue-chip dividend stocks such as Restaurant Brands International (TSX:QSR). Any returns generated in a TFSA are exempt from Canada Revenue Agency taxes, making the registered account perfect for dividend stock owners.

The ideal dividend stock is one that increases its payouts consistently. So, you need to identify companies that are positioned to grow their revenue, earnings, and cash flows consistently over time, resulting in regular dividend hikes.

Let’s see why QSR is the one Canadian dividend stock to hold forever in a TFSA.

Is QSR a good stock to buy?

Restaurant Brands International is among the largest quick-service restaurants globally. With more than $40 billion in system-wide sales each year, QSR has 30,000 restaurants in more than 100 countries. It owns iconic brands such as Tim Hortons, Burger King, Popeyes, and Firehouse Subs. These independently owned brands have been serving millions of customers for decades.

Despite a challenging macro environment, Restaurant Brands International increased comparable sales by 9.6% year over year, while system-wide sales were up 14% in the second quarter (Q2). It ended Q2 with a net income of $351 million while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 10.3% to $665 million.

QSR reported revenue of $1.8 billion in Q2, an increase of 8.3% year over year. Its healthy top line can be attributed to multiple factors, including new products on its menus and marketing campaigns, resulting in higher footfalls at store locations. Moreover, increases in menu prices allowed the company to report system-wide sales of almost $11 billion in the June quarter.

QSR could hence navigate an inflationary environment and increase adjusted earnings by 3.4% year over year. Alternatively, the company increased operating costs by 11% due to higher advertising and general expenses.

Restaurants Brand bets big on international sales

International sales currently account for 45% of total restaurants and comprise 25% of adjusted EBITDA with a predominantly franchise royalty-driven business model. Between 2017 and 2022, QSR has increased its international store count by 7% annually while system-wide sales were up 8%.

Restaurant Brands International expects its total addressable market to increase from $441 billion in 2022 to $619 billion in 2027, providing it with enough room to grow its revenue in the next five years.

Powered by its expansion plans, QSR is forecast to increase sales by 10.5% to $9.61 billion in 2023 and by 6.3% to $10.2 billion in 2024. Comparatively, its adjusted earnings are estimated to widen from $4.2 per share in 2022 to $4.7 per share in 2024.

Priced at 18.8 times forward earnings, QSR stock is reasonably priced, given Bay Street expects earnings to rise by 11.7% annually in the next five years. The TSX stock also trades at a discount of 23% to consensus price target estimates.

A sustainable dividend payout

Restaurants Brands International pays shareholders an annual dividend of $3.02 per share, translating to a dividend yield of 3.2%, double the yield offered by the S&P 500 index. Its improving cash flows should support dividend hikes, given its payout ratio of less than 70% this year. QSR has increased dividends by 21% annually in the last eight years.

Restaurant Brands operates heavily on a franchise-based model, which indicates it is asset-light and retains enough profits to improve shareholder wealth via dividends or buybacks.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Restaurant Brands International. The Motley Fool has a disclosure policy.

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