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Restaurant Brands International and the Top Restaurants Stocks to Feed your TFSA

Melisa R. H.Melisa R. H. Posted On May 9, 2019
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Restaurant stocks are usually purchased for their dividend payouts, although there are some growth names. There are various royalty income funds, or individual stocks investors can choose between. Some have a specific location base, and others are growing, aggressively entering new markets and expanding their global reach.

Although the discretionary spending in restaurant is cyclical, some companies have differentiated themselves, and have proven to remain consistent despite various economic cycles. Many of these restaurants are chain operations, and they continue to grow profitably in the long term.

Quick Service restaurants and casual diners makeup the majority of this list.

Here are the top restaurant stocks to buy in 2019.

🛍 Consumer

Canada

SIR Royalty Income Fund (SRV.UN-T)
A privately held restaurant trust with its base in the Greater Toronto area. They have some high-end restaurants in their portfolio.

SIR Royalty Income Fund (SRV.UN-T) — Stockchase
SIR Royalty Income Fund (SRV.UN-T) — Stockchase

We are seeing lots of money going into reopening themes. Not early here. Relative to pre-covid, what is the environment? Compared to pre-covid on the 2-year chart, it looks like there is opportunity. However, it was already dipping pre-covid.

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Recipe Unlimited Corporation (RECP-T)
Some brands under the corporation include well-known brands including Harvey’s, Swiss Chalet and St-Hubert. It’s one of the largest restaurant chains in Canada. They brought in new management and made some acquisitions.

Recipe Unlimited Corporation (RECP-T) — Stockchase
Recipe Unlimited Corporation (RECP-T) — Stockchase

The old Cara operations. It has made some excellent acquisitions, including TheKeg restaurant chain. The problem is they hold a lot of assets in Alberta. The latest quarter was also impacted by the cold winter this year. He will continue to hold.

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Pizza Pizza Royalty (PZA-T)
They pay a nice yield although some analysts are beginning to question whether it is sustainable. They need to manage their cash flow in order to continue dividends. This is considered an income stock.

Pizza Pizza Royalty (PZA-T) — Stockchase
Pizza Pizza Royalty (PZA-T) — Stockchase

Allan Tong’s Discover Picks Pizza chains are not the same, and we’re not talking taste. Pizza Pizza suffers from being a Canadian chain where reopenings will take longer to roll-out than in America. Though PZA trades at only 13.65x earnings and pays a 6.29% dividend, it’s also missed two of its last four quarters and…

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The Second Cup Ltd (SCU-T)
The Canadian coffee shop announced last summer that they were looking into converting their some of their coffee shops to cannabis shops. They say they are primarily focusing on western Canada, and now Ontario.

The Second Cup Ltd (SCU-T) — Stockchase
The Second Cup Ltd (SCU-T) — Stockchase

A company like this could come down towards the end of the year when there is tax loss selling. When they eliminated the dividend, he put it on his watch list. When he discovers a company, he does not buy into it for at least 6 months. When you see a takeover in the field,…

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Restaurant Brands International (QSR-T)
A Canadian multinational fast food holding company that holds Burger King and Tim Hortons. They recently launched a loyalty program with significant interest.

Restaurant Brands International (QSR-T) — Stockchase
Restaurant Brands International (QSR-T) — Stockchase

They have three strong restaurant brands. The challenge he has is that the business model is to go in, gut the company and bring the costs down. With Tim Hortons there was a huge push-back from franchises and this hurt them.

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MTY Food Group (MTY-T)
A Canadian franchisor for casual dining. They have multiple brands including Thai Express, Sushi Shop and Extreme Pita. They are primarily in food courts and growth comes from acquisitions.

MTY Food Group (MTY-T) — Stockchase
MTY Food Group (MTY-T) — Stockchase

Top pick in May, up 161%. It is pricing in a nearly full recovery. It has run up to where it was. It is not an attractive buy today. He plans to hang on to it.

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A&W Revenue Royalties Income Fund (AW.UN-T)
People have been loving their plant protein line of burgers. A very well-run company with 900 Canadian stores. They pay a dividend of 4.5% and has a good track record of increasing it. They are adding more stores.

A&W Revenue Royalties Income Fund (AW.UN-T) — Stockchase
A&W Revenue Royalties Income Fund (AW.UN-T) — Stockchase

Stands out as one of the best run of the Canadian quick serves. Great growth strategy. Execute well. Hit by pandemic, but the dividend will come back. Short-term blip in a great long-term story. Hold it if you own it. Has potential to continue to surprise.

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Boston Pizza Royalties (BPF.UN-T)
The pizza chain pays a yield of 8.2%. However, investors worry about their 85% payout and whether the dividend is safe. They cut earning estimates by 2%. They were one of the first restaurant royalty income companies and grew rapidly. Same store sales have been lagging for them, but a turnaround might be possible.

Boston Pizza Royalties (BPF.UN-T) — Stockchase
Boston Pizza Royalties (BPF.UN-T) — Stockchase

Safer than a non-royalty stock? They pay out everything they earn at a 13.5% dividend yield. It's sold off sharply, because it is perceived that fast food chains will close down during this outbreak.

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Keg Royalties Income Fund (KEG.UN-T)
A high dividend paying stock with a yield of 6.47%. They are a leading operator of steakhouses and is one of the best managed.

Keg Royalties Income Fund (KEG.UN-T) — Stockchase
Keg Royalties Income Fund (KEG.UN-T) — Stockchase

It has been very well managed and has been one of the better performers. He is staying away from restaurants as they are expensive and have very little growth. This is one of the better ones, however. If you are happy with the dividend then hold on to it.

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Freshii Inc (FRII-T)
They have not done too well since their IPO. They also missed expectations and were hit during tax loss selling. They have huge potential if they are able to manage their operations better. Initial valuation during the IPO was considered to be high with hard targets to meet.

Freshii Inc (FRII-T) — Stockchase
Freshii Inc (FRII-T) — Stockchase

It has struggled since IPO. They are now optimizing their stores. They have had a hard time growing their profits. He would wait until they start to show some profit growth.

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United States

McDonalds (MCD-N)
The top restaurant stock in the world. McDonald’s remains a favorite among investors. The restaurant is considered to have the most convincing valuation amongst fast food companies. Same store sales are growing and there is more upside to come.

McDonalds (MCD-N) — Stockchase
McDonalds (MCD-N) — Stockchase

Part of the current reopening rally? The problem with MCD is that they've been inconsistent lately. It pays a 2.5% yield, but if that reaches 3%, then buy.

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Chipotle Mexican Grill (CMG-N)
The company’s stock has improved and has bounced back due to changes being implemented by the new CEO. The restaurant has been focusing on product diversification and their loyalty program as well as improving core operations.

Chipotle Mexican Grill (CMG-N) — Stockchase
Chipotle Mexican Grill (CMG-N) — Stockchase

Fractional shares to buy instead of playing the short squeeze of GameStop, AMC, etc. They're making as much money from delivery and take-out from in-store dining. Later, in-store dining will come back with the reopening.

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Cheesecake Factory Inc (The) (CAKE-Q)
A restaurant brand famous for their cheesecakes. They performed well but topped out and pulled back. The restaurant has struggled to grow and same store growth has plateaued. Is a comeback in sight?

Cheesecake Factory Inc (The) (CAKE-Q) — Stockchase
Cheesecake Factory Inc (The) (CAKE-Q) — Stockchase

Poor price momentum, though valuation is decent.

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Yum! Brands (YUM-N)
An American fast food company that operates KFC, Taco Bell and Pizza Hut. They are diversified globally and positioned in markets that have growing sales. China account for a big part of their revenues. They are now moving into India.

Yum! Brands (YUM-N) — Stockchase
Yum! Brands (YUM-N) — Stockchase

Has held it for many years. Recently sold it to make room for one of her top picks. A well-regarded quick serve company. The Chinese spinout has done better than the Yum! Brands that trades in New York. Saw better opportunities elsewhere.

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Shake Shack Inc (SHAK-N)
A fast casual restaurant chain that started In New York City. They recently announced that same-store sales have risen by 3.6%. They are investing in innovations and working on adding to their menu.

Shake Shack Inc (SHAK-N) — Stockchase
Shake Shack Inc (SHAK-N) — Stockchase

Time to add? They are only in 26 states so far, so there is a long playing field for SHAK-N. It trades at a high multiple, so if they disappoint it can become very painful quickly. Be cautious. He prefers to own the established names like SBUX-Q or CMG-N.

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Starbucks (SBUX-Q)
The world famous coffee shop that shaped coffee culture across the globe. They are a well run company that continues to innovate but their valuation has gotten quite high. There are also questions of where new growth will come for, but they’re sure to have a plan. Wait for a pullback and hold for long-term.

Starbucks (SBUX-Q) — Stockchase
Starbucks (SBUX-Q) — Stockchase

A quality stock that is poised to benefit from the reopening. Same store sales were up 5% in China. They are overcoming fewer transactions with offsetting bigger baskets. 2021 outlook was raised. 48% EPS growth trading at 25x 2023 valuation. Pays a reasonable dividend. (Analysts’ price target is $108.84)

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