Readers hoping to buy Restaurant Brands International Inc. (NYSE:QSR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 16th of September, you won't be eligible to receive this dividend, when it is paid on the 3rd of October.
Restaurant Brands International's upcoming dividend is US$0.50 a share, following on from the last 12 months, when the company distributed a total of US$2.00 per share to shareholders. Last year's total dividend payments show that Restaurant Brands International has a trailing yield of 2.8% on the current share price of $71.8. If you buy this business for its dividend, you should have an idea of whether Restaurant Brands International's dividend is reliable and sustainable. As a result, readers should always check whether Restaurant Brands International has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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 more than half (67%) of its free cash flow in the past year, which is within an average range for most companies.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Restaurant Brands International has grown its earnings rapidly, up 28% 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Restaurant Brands International has delivered 41% dividend growth per year on average over the past 5 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Restaurant Brands International? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully 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 67% respectively. Overall, it's hard to get excited about Restaurant Brands International from a dividend perspective.
Wondering what the future holds for Restaurant Brands International? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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