Why Warren Buffett Likes This Canadian Stock

With over $500 million in Restaurant Brands International (TSX:QSR)(NYSE:QSR) shares, Warren Buffett is one of the company’s biggest owners.

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett is not known for investing outside his home turf. Although he has made a few international acquisitions, he mostly tends to keep his money in the United States, which is why Berkshire Hathaway’s (NYSE:BRK-A)(NYSE:BRK-B) international holdings are all the more worth copying. Buffett doesn’t invest internationally unless he has an exceptionally good reason to do so, so any Canadian stocks in his portfolio are likely to be extremely good businesses.

Enter Restaurant Brands International (TSX:QSR)(NYSE:QSR). Restaurant Brands is based in Toronto and is listed on the TSX. Although the stock’s origins are both Canadian and American (it originated from the $12.5 billion merger between Burger King and Tim Hortons), and the company’s largest owner is Brazilian, the company itself is legally domiciled in Canada.

Buffett made headlines in 2017 for redeeming $3 billion worth of Restaurant Brands preferred shares at a tidy profit. However, in November of last year, Berkshire Hathaway’s 13-F filing showed that the firm still owned about $500 million worth of them, making it the third-largest shareholder. So Buffett is still betting big on Restaurant Brands. To understand why that’s the case, we need to look at the details of 2017’s repayment.

About the repayment deal

When Buffett redeemed $3 billion worth of QSR preferred shares, it was under special circumstances. Buffett’s investment in Restaurant Brands included stipulations that allowed him to redeem the shares at a 9.9% premium, so he sold above the market value. Additionally, Buffett wanted to increase his cash pile to finance further acquisitions at the time, which means that his cash-out does not imply that he no longer liked the shares. The fact that he still owns around $500 million worth of them.

Why Buffett is still holding

Buffett hasn’t publicly commented on why he continues to own Restaurant Brands shares. However, we can make some inferences.

First, the company is a solid dividend producer, with a 3.26% yield (as of this writing) and a whopping 109% payout increase between 2017 and 2018. Although Buffett isn’t exactly a dividend worshipper–Berkshire pays no dividend–he does have a tendency to invest in dividend stocks to increase his cash horde.

Second, Restaurant Brands is a winner by many of the metrics that Warren Buffett likes. Notably, it has a 23% return on equity–ROE has often been described as Buffett’s favourite profitability metric–and an operating margin of 37% in the trailing 12-month period. In terms of growth, Restaurant Brands isn’t one of the hottest stocks you’ll find, but Buffett has stated that he’ll invest in stocks that represent good value even if earnings growth isn’t red-hot.

Bottom line

Restaurant Brands is a solid company with three great brands under its belt. Although Tim Hortons has been struggling lately, the company’s other two subsidiaries are still kicking with nearly double-digit sales growth. Combine that with the hearty ROE and operating margin figures, and it’s not hard to see why Warren Buffett likes Restaurant Brands.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares) and RESTAURANT BRANDS INTERNATIONAL INC.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »