For investors looking to generate outsized returns in the Canadian stock market, there are certainly a few stocks worth adding at current levels. Of course, most investor attention may be paid to the financials, energy, or materials sectors. But there are other global names, such as Restaurant Brands (TSX:QSR), that are worth diversifying into as long-term holds.
I’ve long considered Restaurant Brands a core holding for investors seeking a nice mix of defensiveness, value, income, and growth. Here’s why I think this relatively overlooked fast-food giant is worth buying at current levels.
Stability, stability, stability
Finding companies with stable and growing cash flows is the name of the game for most investors. However, given various economic headwinds, picking out the businesses that have not only the potential to grow long-term, but the ability to weather near-term storms, is a tricky business.
I think Restaurant Brands’s business model places the company squarely in the bucket of defensive long-term growth stocks I’d want to own. The company’s four core banners include Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. These businesses are unique in their offerings and have global appeal.
With Restaurant Brands continuing to expand internationally, the company’s growth profile remains strong. And if we do hit some economic turbulence, the trade-down toward the banners Restaurant Brands operates should bode well for shareholders.
Strong financial performance
Looking backward, we can see a relatively strong trend of growth, which bodes well for investors buying QSR stock at its current multiple.
The company brought in system-wide revenue growth of 12.2% year over year in 2023, which was partly driven by net restaurant growth of nearly 4%. Still, organic same-store sales are rising, as is the company’s net profit. Restaurant Brands brought in $2.05 billion in operating income last year, up from just under $1.9 billion the year prior.
These cash flows will continue to be reinvested into the business and help cover the company’s strong 2.9% dividend yield. Over the long term, I expect continued cash flow growth to translate into future dividend hikes, bolstering existing investor’s total returns.
A high-quality gem worth holding
I think Restaurant Brands is a unique TSX stock in that it’s one of the few I’d hold it through multiple cycles. In good times or bad, this company will continue to pump out cash flow. As investors, that’s the primary metric to watch, and it’s partly why this company has continued to perform so well of late.
Yes, Restaurant Brands is trading near an all-time high. But as the company grows and expands internationally, plenty of upside is left for this decently valued stock right now.
