When it comes to buying stocks that can facilitate long-term capital appreciation, Shopify (TSX:SHOP) is an all-time favourite among investors. However, if you ask me, there is one dividend all-star, which I will buy over Shopify any day of the week. It is Restaurant Brands (TSX:QSR).
Of course, that’s because there’s more to owning a stock than just growth. Defensiveness, dividend income, and total returns matter. And while Shopify remains one of the best growth stocks in the market (and I still think it is worth owning), I continue to lean toward Restaurant Brands as a better overall pick.
Here’s why.
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Restaurant Brands delivers strong income
As mentioned, dividend income matters for long-term investors. On this front, Restaurant Brands remains an excellent pick, with a yield of 3.2%. The company will pay a dividend of $0.74 to shareholders of record as of Sep. 19 on Oct. 4. This amounts to a healthy payout ratio of 65%, meaning there’s plenty of room for further dividend increases over time, assuming the company is able to continue growing its earnings as expected.
Restaurant Brands has continued to increase its dividend distributions over the past five years, making this an excellent dividend growth stock to buy. While this is a relatively short history in relation to other dividend growth stocks, I think QSR stock is one to hold for passive income over the long term.
The company also provides solid share buybacks
Investors love having capital redistributed into their pockets every quarter. In that respect, dividends are great.
However, Restaurant Brands also returns capital to shareholders via a more tax-efficient process in share buybacks. On Sep. 1, the company received board approval to repurchase up to US$1 billion of shares over the next two years. This follows up on a previous buyback program, in which the company promised to buy back an initial US$1 billion in shares.
Such moves help reduce an organization’s equity base, enabling them to divide profits across lesser shares. Thus, existing shareholders get to enjoy higher earnings per share and returns on equity, which, in turn, enhances their portfolio value.
Strong earnings bolster the argument for this stock
Restaurant Brands posted impressive results in its second-quarter 2023 financial results. Its system-wide sales growth of 14% year over year was impressive, with the company’s net income growing to a whopping US$351 million.
The company’s consolidated comparable and net restaurant sales increased by 9.6% and 4.1%, respectively. Additionally, its adjusted earnings before interest, taxes, depreciation, and amortization figures reached US$665 million, indicating an organic growth of 10.3% from the previous year.
