This High-Yield Dividend Stock Could Beef Up Your Portfolio | The Motley Fool

2022-07-30 02:28:39 By : Ms. Jane Fu

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You might not be familiar with the name Restaurant Brands International (QSR 0.92% ) , but you definitely know the largest company under its umbrella, Burger King. And there's more to Restaurant Brands than just Burger King. The Toronto-based company also owns Tim Hortons, Popeyes Louisiana Kitchen, and Firehouse Subs.

While it doesn't get the same amount of love or attention as its much-larger competitor McDonald's (MCD -0.03% ) , there's a lot to like about Restaurant Brands, a dividend stock with a portfolio of fast-food chains that spans the globe. Let's dig into a few reasons the stock looks like a good investment that can beef up your portfolio.  

Altogether, Restaurant Brands has over 29,000 restaurants in 100 countries. It owns and operates some of its restaurants and franchises others. Franchisees pay the company for the right to operate one of its offerings.

There are many advantages to running a franchise-based business model. Because franchisees pay much of the up-front cost to open a new franchise, these companies are asset-light and can grow their store count quickly. Franchisors also typically have high margins as most operating costs are borne by the franchisees. The franchisor collects up-front franchise fees and ongoing royalties based on revenue.

As such, Restaurant Brands has a lot of ways to make money: up-front franchise fees for opening a new restaurant, ongoing royalty payments, and sales at company-owned restaurants. In some cases, it even owns the real estate that these franchises occupy, and receives lease payments from franchisees. I like that the company has a diversified revenue stream from a group of different restaurants worldwide.  

While 29,000 restaurants is a large number, Restaurant Brands is actually a lot smaller than some of its peers. For comparison, McDonald's has 40,000 restaurants worldwide, and it doesn't have a group of other restaurants in its portfolio like Restaurant Brands. Yum! Brands (YUM -0.14% ) , the parent of Taco Bell, KFC, and Pizza Hut, has over 50,000 locations in 157 countries.

Restaurant Brands is targeting a count of 40,000 restaurants in the future, so there is plenty of room for growth. If it can hit this target, royalty payments from franchisees should increase substantially over time. With a market cap of $22 billion, the company's valuation is less than one-eighth that of McDonald's, so there is plenty of runway for the stock's market cap to grow as well.

While the group as a whole has a lot of growth potential, Popeyes in particular stands out. Burger King might have fully saturated its market at this point, but Popeyes still has a long way to go. Restaurant Brands acquired the chain in 2017,  and it is safe to say that it has been a home run.

The release of Popeyes' chicken sandwich in 2019 was a smash hit, nearly breaking the internet and social media. It quickly sold out, and Popeyes even went viral by playfully trading jabs with competitor Chick-fil-A on social media.

With about 3,500 locations in 30 countries, Popeyes has a lot of room to expand its footprint in new countries and total store count. KFC, another fried chicken purveyor, has over 25,000 locations in 145 countries, indicating that there is a lot of room to run before Popeyes comes anywhere close to hitting some sort of saturation point. And if the fanfare over its chicken sandwiches is any indication, people in new markets will welcome its "Louisiana-style" fried chicken. 

Restaurant Brands quietly acquired Firehouse Subs in an all-cash $1 billion deal that mostly flew under the radar at the end of 2021. While it has not yet experienced the viral fame that Popeyes has enjoyed, Firehouse is a growing entity within the quick-serve sandwich category, and now has about 1,200 restaurants, which is triple its footprint from 2010. And 97% of these establishments are franchised.

Firehouse has a strong and well-liked brand and is highly rated within the sandwich category. Firehouse is even smaller than Popeyes, and has plenty of room to grow before hitting a saturation point. Growth should accelerate, especially now that Firehouse has more resources as part of Restaurant Brands' portfolio. 

In addition to its attractive, franchise-based model and interesting growth drivers, Restaurant Brands pays out a great dividend. At current prices, the stock yields 4.2%, well above the market average and more than double the yield of large peers McDonald's and Yum! Brands. And the company has steadily increased its dividend payout over the last several years. 

Restaurant Brands has an attractive, asset-light franchise model with recurring royalty payments and a lot of room to grow, particularly with newer additions like Popeyes and Firehouse Subs. Plus, there's that market-beating dividend. Based on these factors, it looks like a good buy that can beef up your portfolio. 

Michael Byrne has no position in any of the stocks mentioned. The Motley Fool recommends Restaurant Brands International Inc. The Motley Fool has a disclosure policy.

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