Is Restaurant Brands International Stock a Buy for its 3.3% Dividend Yield?

QSR stock still trades near 52-week highs yet offers a pretty good dividend as well. So, is it worth it, or is the high debt load too much?

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Dividend stocks often shine for investors seeking both income and potential capital appreciation. By regularly distributing a portion of earnings, these stocks provide a steady stream of income, which can be reinvested or used to cover expenses. Not only are these stocks typically less volatile, but they often belong to established companies with strong fundamentals. For those eyeing Restaurant Brands International (TSX:QSR), its dividend yield of 3.3% is an enticing feature. Let’s dive into why QSR could be a strong dividend play by unpacking its earnings, past performance, and outlook.

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Into earnings

Recent earnings suggest QSR stock is in good financial health. With quarterly revenue growth year over year of 24.7%, the company continues to demonstrate robust top-line performance. Its trailing 12-month revenue of $7.93 billion showcases consistent operations bolstered by well-known brands like Tim Hortons, Burger King, and Popeyes. Despite a significant debt-to-equity ratio of 316.99%, QSR manages a profit margin of 16.01%, reflecting its ability to generate solid returns even with leveraged finances.

Historically, QSR has been a dividend darling for investors, offering stable payouts supported by its strong cash flow. Over the years, its five-year average dividend yield of 3.41% has made it attractive to income seekers. Plus, a payout ratio of 57.39% ensures the company retains enough earnings for reinvestment while keeping dividends flowing. This balance often appeals to long-term investors looking for reliable income without jeopardizing growth.

Future outlook

Looking ahead, QSR’s forward price-to-earnings (P/E) ratio of 13.4 signals potential undervaluation compared to its trailing P/E of 17.55. Analysts anticipate growth driven by continued expansion in international markets and investments in digital transformation. As customers increasingly embrace app-based ordering and delivery, QSR stock’s initiatives in this space could fuel future growth and fortify its dividend-paying capabilities.

But dividends are only part of the story. Investors should also weigh QSR stock’s strategic decisions, like its commitment to improving franchisee relationships and optimizing restaurant operations. Its investment in the revitalization of Tim Hortons, for instance, has shown promise, contributing to the positive revenue growth seen recently. This ability to pivot and reinvest in its brands suggests management is focused on long-term sustainability.

What to watch

One area of caution is QSR’s debt load, which stands at $15.97 billion. While this level of leverage can amplify returns during good times, it could become a concern in a high-interest-rate environment. That said, QSR stock’s operating cash flow of $1.42 billion and levered free cash flow of $1.32 billion provide some reassurance about its ability to manage liabilities.

For income investors, QSR stock’s dividends are paid quarterly. If you’re eyeing this stock, consider locking in your position before then to secure the next payout. The company has maintained a regular dividend schedule, providing predictability—a key attribute for those building passive-income streams.

Ultimately, whether QSR is a buy comes down to your investment strategy. If you’re seeking a blend of dividend income and moderate growth potential, it checks many boxes. However, the high debt level warrants careful monitoring. The stock’s current valuation, with a share price hovering around $97.85, sits comfortably within its 52-week range, suggesting it is neither overvalued nor undervalued.

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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 Amy Legate-Wolfe 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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