Restaurant Brands International Inc.'s (NYSE:QSR) dividend will be increasing from last year's payment of the same period to $0.55 on 6th of July. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.
Restaurant Brands International's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Restaurant Brands International was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Looking forward, earnings per share is forecast to rise by 14.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which is in the range that makes us comfortable with the sustainability of the dividend.
Restaurant Brands International Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 8 years was $0.36 in 2015, and the most recent fiscal year payment was $2.20. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Restaurant Brands International May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Restaurant Brands International hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 1.5% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Overall, we always like to see the dividend being raised, but we don't think Restaurant Brands International will make a great income stock. While Restaurant Brands International is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Restaurant Brands International (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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