It looks like Restaurant Brands International Limited Partnership (TSE:QSP.UN) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Restaurant Brands International Limited Partnership's shares before the 19th of September to receive the dividend, which will be paid on the 4th of October.
The company's next dividend payment will be US$0.55 per share. Last year, in total, the company distributed US$2.20 to shareholders. Based on the last year's worth of payments, Restaurant Brands International Limited Partnership has a trailing yield of 3.3% on the current stock price of CA$91.16. If you buy this business for its dividend, you should have an idea of whether Restaurant Brands International Limited Partnership's dividend is reliable and sustainable. So we need to investigate whether Restaurant Brands International Limited Partnership can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Restaurant Brands International Limited Partnership is paying out an acceptable 50% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Restaurant Brands International Limited Partnership, with earnings per share up 9.0% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Restaurant Brands International Limited Partnership has delivered 25% dividend growth per year on average over the past eight years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is Restaurant Brands International Limited Partnership worth buying for its dividend? Earnings per share have been growing modestly and Restaurant Brands International Limited Partnership paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Restaurant Brands International Limited Partnership from a dividend perspective.
So if you want to do more digging on Restaurant Brands International Limited Partnership, you'll find it worthwhile knowing the risks that this stock faces. For example, Restaurant Brands International Limited Partnership has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.