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

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

Needs vs. wants. Tim's is the vulnerability at 40% of the operating profit, and 25% below pre-Covid. Many people are not back in the office. Popeye's has plateaued. Challenging macro backdrop.

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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

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They generate free cash flow and the valuation is fairly cheap now at 2.5x forward sales and 15x forward P/E. Liquidity is not great. If rates rise, the debt could become a problem and put pressure on their margins and balance sheet. Valuation is at…

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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

Nice recovery from Covid. Massive increases in price of raw materials and labour. Will they be able to increase margins? Will consumer be forced to come down market and boost their business? Yields are very attractive. After the recent run, all stocks should pull back, so he's watching the space.

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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

Inflation and soaring gas prices effecting consumer spending Consumer spending is still robust and can withstand an oil shock for a while. He's more concerned with McDonald's shutting down in Russia and halting nearly 10% of their sales. The hike in oil prices will be temporary, because it is a big political issue; that price…

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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

Will ultimately recover. Best among fast-food operators. Better times ahead. UBS reiterated it as a buy.

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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

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.

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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

They report Wednesday. Chipotle just reported a good quarter and the market didn't care--warning. Chipotle owns all its stores, but Yum is heavily franchised. Will Yum have the same success finding workers as Chipotle?

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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

Down today on weak guidance. This was going to be down no matter what, because now no stock is going up despite earnings. If someone is selling a stock because of Omicron, it's stupid. The pandemic won't last forever. The brand value alone is worth half its market cap. Today's drop is not meaningful. He's…

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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

Struggling to evaluate company at this time (poor service and decreasing shop count). Underlying negative trends for the company. Current price not highly attractive. Expecting stock price to decrease. Expecting inflation to negatively affect business.

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