Down 15%, This Magnificent Dividend Stock Is a Screaming Buy

Down 15% from all-time highs, Restaurant Brands International is a dividend stock trading at a reasonable valuation.

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Shares of Restaurant Brands International (TSX:QSR) are down 15% from all-time highs, valuing the TSX stock at $42 billion by market cap. QSR stock went public in late 2014 and has since more than tripled investor returns, outpacing the TSX index in this period. Today, Restaurant Brands International pays shareholders an annual dividend of US$2.32 per share, indicating a forward yield of 3.33%. In addition to its attractive dividend yield, QSR stock is also positioned to deliver gains via share price appreciation, making it a screaming buy right now. Let’s dive deeper.

Restaurant Brands International is on an acquisition spree

Restaurants Brands International operates as a quick-service restaurant company in Canada and several other international markets. It is the owner of brands such as Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs.

Earlier this month, Restaurants Brands announced the acquisition of Popeyes China and the co-investment with Cartesian Capital into the business of TH International, reflecting the company’s growing confidence in China, one of its largest markets globally. QSR is expected to invest around US$45 million in the two transactions.

RBI will acquire Popeyes China for an enterprise value of US$15 million, after which it will own and operate 14 restaurants in the country. Cartesian Capital and RBI agreed to invest up to US$50 million in Tims China to gain traction in one of the fastest-growing coffee markets in the world.

In May 2024, RBI closed the acquisition of Carrols Restaurant for an enterprise value of US$1 billion. RBI will further invest capital in accelerating the reimaging of over 600 Carrols restaurants before franchising the majority of the acquired portfolio to new or existing franchise operators.

How did RBI perform in Q1 of 2024?

RBI stated it had a good start to 2024 with first-quarter (Q1) comparable sales of 4.6% and net restaurant growth of 3.9%. This allowed the company to increase system-wide sales by 8.1% and adjusted operating income by 7.7%.

In addition to remodelling its restaurants, RBI opened 43 net new restaurants in Q1. It continues to expect mid-4 % net restaurant growth for 2024, with development ramping in the second half of 2024.

RBI’s chief executive officer (CEO) Joshua Kobza stated, “After an incredible performance in 2023, our franchisees and teams delivered another quarter of improved home market franchisee profitability driven by top-line sales growth and enhanced operations.”

RBI ended Q1 with US$2.3 billion in liquidity, including US$1 billion of cash. With a net leverage ratio of 4.8 times, it aims to end 2024 with a lower leverage multiple despite the acquisition of Carrols.

Is QSR stock undervalued?

Analysts tracking Restaurant Brands International expect sales to rise by 16.5% to US$8.2 billion in 2024 and 9.7% to US$9 billion in 2025. Its adjusted earnings are forecast to expand from US$3.24 per share in 2023 to US$3.42 per share in 2024 and US$3.88 per share in 2025. So, priced at 18 times forward earnings, QSR stock is quite cheap, given its growth forecasts and dividend yield.

Moreover, an expanding earnings base should translate to dividend hikes going forward. RBI has already raised dividends by 19% annually in the last nine years.

Wall Street remains bullish on QSR stock and expects it to surge over 20% in the next 12 months.

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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