What are we looking for?
Sustainable dividends from top restaurant chains now leveraging technology for long-term gains.
The screen
Restaurant Brands International Inc., the Toronto-headquartered owner of Tim Hortons, Burger King and Popeyes, is expanding into submarine sandwiches with the US$1-billion purchase of Florida’s Firehouse Subs. The sub chain has nearly 1,200 locations across the U.S., Canada and Puerto Rico.
Owners of top restaurant chains haven’t pulled back during the COVID-19 pandemic but instead have focused on building their digital presence through their order-ahead, delivery and loyalty program technologies. The shift lets them attract and retain more customers at the same time it helps to cut labour and overhead costs.
We started this search with an extensive list of dividend-paying Canadian and U.S. restaurant stocks, before singling out those offering steady growth spurred by digital investment. We then applied our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow to cover dividends;
- One point if the company is an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks:
Restaurant Brands International plans to use its online expertise to better position Firehouse Subs as a direct competitor to privately held, Connecticut-based Subway.
Kentucky-based Texas Roadhouse Inc. helms three full-service casual-dining chains and has invested in order technology to sustain growth even under COVID-19 lockdowns.
FAT Brands Inc. offers online ordering for all 15 of its restaurant brands, including Fatburger and Johnny Rockets. It’s also opening digital-only restaurants backed by delivery-only kitchens.
Michigan-based Domino’s Pizza Inc. is an early leader in tech-enabled takeout and delivery. Domino’s meagre dividend yield reflects its impressive share price climb this year.
Yum! Brands Inc., based in Kentucky, has roughly 50,000 restaurants under the KFC, Pizza Hut and Taco Bell banners, and it plans to add artificial intelligence to automate routine restaurant operations.
Chicago-based fast food giant McDonald’s Corp. launched a loyalty program this year in its digital push to spur customer spending.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.