A 3.6% dividend yield may not seem all too bountiful, especially when you could secure a yield that’s double the size with a high-yield real estate investment trust or even some harder-hit names in other pressured industries. Still, when it comes to upfront yield and the potential for dividend growth, I like the 3-4% range for dividend (growth) stocks meant to be held for the long haul. At this juncture, the artificial intelligence (AI) trade is going from heated to blistering hot.
I think it makes sense to take a step or two back to consider the types of dividend stocks that most other euphoric investors (some of whom might be a bit overexcited about the AI stocks) may be overlooking as they chase returns in the hottest corner of the S&P 500.
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Restaurant Brands stock is a dividend gem
Restaurant Brands International (TSX: QSR) stands out as the ultimate dividend-growth stock that could continue to stand tall, even once the next correction hits the TSX Index. Indeed, it’s a lower beta name (it’s currently at 0.67) that isn’t as influenced by the broad markets as most other names.
Additionally, I like the predictable dividend-growth trajectory as the company, which stands behind such names as Tim Hortons, Popeyes Louisiana Kitchen, Burger King, and Firehouse Subs, expands its footprint across the world (remember the “international” in Restaurant Brands International), I think the path of least resistance for sales is higher, at least over the long run.
With a robust balance sheet and a secure payout ratio, I think there’s room for dividend growth in the coming five years, especially as management gets more serious about expanding into new markets. Recently, the company announced that it’s expanding into Mexico with help from regional franchisees, with plans to open more than 300 Popeyes restaurants over the next 10 years or so.
Lots of expansion opportunities
Indeed, the key is regional franchisees, which will enable Restaurant Brands to grow quickly into a market that’s not without its fair share of risks. Indeed, if you can have a more capital-light expansion with the expertise of regional partners, I think the odds of profound success are much higher. If the expansion shows early signs of success, I think there’s nothing stopping management from cranking up the store count as it looks to really bring out the best in the fried-chicken chain.
I think the quick-serve restaurant scene will be looking up going into the new year, as the worst of consumer pressures and inflation looks to ease further.
Of course, more rate cuts could cause another uptick in inflation, but with a strong value menu and one of the highest growth ceilings in all of the fast-food industry (four powerful brands with the option to acquire another in the future), I think the dividend growth sensation is built to last. At $95 and change, the stock looks way too cheap, given how much runway the dividend can grow in the coming decade. Given the powerful brands with QSR, I think a $43.4 billion market cap is too low!
