Restaurant Brands (TSX: QSR) is a global conglomerate with a large restaurant portfolio. Unlike many TSX-listed stocks, the restaurant giant isn’t just focused on Canada. Instead, we’re talking about a global behemoth operating in more than 100 countries with 28,000 locations.
The company’s business model is very simple: it provides service to franchisees and brand and marketing support and earns very stable and consistent revenues, which can be passed onto shareholders. (The company has done so over time.)
Let’s dive into why this is a business that long-term investors may want to consider right now.
Source: Getty Images
Strong recent financial performance
In the first quarter of 2024, Restaurant Brands reported an increase of 4.6% in its consolidated comparable sales, while system-wide sales grew 8.1% year over year. The company’s operating income for the period came in at US$544 million, an increase from the US$447 million Restaurant Brands reported in the same quarter the year prior. Importantly, the company’s net income came in at a whopping US$328 million and free cash flow at US$122 million, both up substantially on a year-over-year basis.
Although Restaurant Brands International has been paying a stable dividend for a while, there are always risks to be considered. This dividend is relatively new. And while the company’s distribution has risen from US$0.36 to US$2.32 per year since 2015, it’s unclear whether this can truly be sustained long term.
The thing is, the company’s solid and consistent growth profile provides me with confidence that future dividends will be more than able to be covered by cash flow growth. Nothing is for certain, and that’s what makes markets. But this is a company that’s shown the ability and willingness to treat investors right, and that’s a company I like.
Is now the time to buy Restaurant Brands stock?
Restaurant Brands released its five-year strategy in February 2024, projecting its future performance. The company plans to achieve $60 billion in global sales by 2026, averaging 7% in terms of annual revenue growth from 2023 on. The company’s forward projection of 7% revenue growth is materially higher than the company’s historical five-year average growth rate of 6% and is something many analysts and investors clearly like to see.
Restaurant Brands has made some solid progress in improving its gross margins and should continue to see strong growth, which will allow the company to continue to pay dividends and buy back stock over time. Over the long term, I think this is a winning combination, and investors are likely to benefit from the company’s strong total return profile.
