Restaurant Brands International and the Top Restaurants Stocks to Feed your TFSA
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.
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.
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.
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.
Fairfax wants to buy RECP Sometimes Fairfax hits a home or strikes-out when it take over a company. He stands on the sidelines and watches in admiration. Doesn't know if this will work out or not.
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.
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research PZA is a $457.9M company that pays a 6.4% yield. Its performance has been quite resilient over the last few years, and it now trades at a 14.6X forward earnings multiple. PZA operates as a royalty company that collects stable royalty earnings from the franchisee…
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.
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,…
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.
Does not currently own stock, but likes company. Internationally one of largest restaurant companies in the world. Diverse cash flow basis. Excellent brand value that can weather a recession. Would recommend holding stock if already own it. Safe dividend yield around 3%.
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.
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Debt levels can be a concern. Operating cash flow stable. Management focused on cost cutting. Unlock Premium - Try 5i Free
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.
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research AW.UN is a fundamentally strong fund, and is primarily an income stock. It has a yield of 5.8%, has grown its distributions by 3% annually over the past 10 years, and is reasonably valued at these levels. We feel that investors have opted to purchase…
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.
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Debt becoming a concern. Delivery and take-out only sources of sales. Special dividend paid this quarter. Dividend reinstated at a lower rate.
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.
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.
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.
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.
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.
It has transformed itself and has bottomed after a sell-off, consolidated and had a nice rally. It is well valued now so wait to buy at $290
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.
They reported mixed numbers after the bell: in-line same-store sales, light revenues, but a bottom-line per share earnings beat. They're making more money because of better restaurant margins as key costs finally are declining. But they guided lower same-store sales this quarter; they're being conservative. Shares were up 50% YTD going into this quarter and…
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?
It was trading at $49 when a large order occurred; he started started buying $55 October calls. Today, it's making a nice 3-4% move. It's more than tripled since the Covid bottom. He will hold them for two months.
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.
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.
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.
(A Top Pick Oct 26/22, Up 11%) It has an 18 to 29% growth rate over the few years along with a 1.3 times PEG ratio. Growth is good especially in China.