Restaurant Brands International Inc. (NYSE:QSR) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 13th of March, you won't be eligible to receive this dividend, when it is paid on the 3rd of April.
Restaurant Brands International's next dividend payment will be US$0.52 per share, on the back of last year when the company paid a total of US$2.08 to shareholders. Looking at the last 12 months of distributions, Restaurant Brands International has a trailing yield of approximately 3.8% on its current stock price of $55.03. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Restaurant Brands International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. It's encouraging to see Restaurant Brands International has grown its earnings rapidly, up 48% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Restaurant Brands International has delivered 42% dividend growth per year on average over the past five years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is Restaurant Brands International worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Restaurant Brands International's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 83% and 64% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
While it's tempting to invest in Restaurant Brands International for the dividends alone, you should always be mindful of the risks involved. For example, Restaurant Brands International has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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