Reinvesting dividends is one of the keys to building wealth, and today I’ll be putting some of the cash to work in my model Yield Hog Dividend Growth Portfolio.
Before I announce how I’ll be spending my money, let’s quickly recap the portfolio’s performance.
Thanks to a stellar start in 2019, the portfolio has widened its lead over the S&P/TSX Composite Index. Through Feb. 28, it posted total return of 12 per cent since inception on Oct. 1, 2017. That easily topped the total return of 6.7 per cent for Canada’s benchmark index over the same period. The model portfolio has also outpaced some of Canada’s largest dividend exchange-traded funds, including the iShares Canadian Select Dividend Index ETF (XDV), with a total return of 2.53 per cent, and the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ), which gained 5.21 per cent. (All return figures include dividends.)
The model portfolio’s cash flow also continues to grow. So far in 2019, 10 of its 20 stocks (it also holds two ETFs) have raised their dividends – namely A&W Revenue Royalties Income Fund (AW.UN), BCE Inc. (BCE), Brookfield Infrastructure Partners LP (BIP.UN), Canadian Apartment Properties REIT (CAR.UN), Canadian Imperial Bank of Commerce (CM), Canadian Utilities Ltd. (CU), Restaurant Brands International Inc. (QSR), Royal Bank of Canada (RY), Toronto-Dominion Bank (TD) and TransCanada Corp. (TRP).
Driven by dividend hikes and regular dividend reinvestments, the portfolio is now churning out $4,905 in cash on an annualized basis – up 19.8 per cent since inception. That works out to a yield of about 4.4 per cent based on the portfolio’s Feb. 28 value of $112,038.47, up from $100,000 at inception. (Note: The model portfolio uses virtual dollars, but I own all of the same stocks – plus a few others – in my real-life portfolio as well.)
Now, it’s time to go shopping.
Last August, I added Restaurant Brands to my model portfolio, and since then the shares have delivered a total return of about 10 per cent. Much of that gain happened in January, when the owner of Tim Hortons, Burger King and Popeyes Louisiana Kitchen served up a juicy 11.1-per-cent dividend increase and announced that same-store sales grew at each of its chains during the fourth quarter ended Dec. 31.
I believe Restaurant Brands has a lot more growth to offer, which is why I am buying an additional 10 shares, for a total of 55.
One reason I’m optimistic is that Tim Hortons is getting back in form as it puts a dispute with franchisees behind it. Same-store sales at Tim Hortons’s Canadian restaurants grew a solid 2.2 per cent in the fourth quarter, and new menu offerings and improved marketing should keep sales growing. The current Roll Up The Rim campaign, for example, has a refreshing energy and humour that was lacking in some of the chain’s previous advertising.
Another reason I like Restaurant Brands is that the company is expanding all three of its fast-food banners at a healthy pace. In 2018, the number of Tims restaurants grew by 2.1 per cent, Burger King’s store count rose by 6.1 per cent and Popeyes’ jumped 7.3 per cent. Under new chief executive Jose Cil – who oversaw impressive growth as president of Burger King – Restaurant Brands’ global expansion could even accelerate.
Mr. Cil is expected to detail his plans at an investor conference scheduled for May 15 in New York. Analysts say the meeting could be a catalyst for the share price.
“This event could elevate conviction that QSR has tools for best-in-class growth amongst the group,” Oppenheimer analyst Brian Bittner said in a note in which he reiterated an “outperform” rating on the stock, which trades on the New York and Toronto stock exchanges, and raised his price target to US$75 from US$65. The shares, which yield about 3.2 per cent, closed on Tuesday at US$62.38 on the NYSE and $83.29 on the TSX.
Other analysts are also bullish on the stock, which has 10 buy or equivalent ratings, four holds and no sells, according to Refinitiv. The average 12-month price target is US$73.88.
I don’t know if I’ll win anything the next time I roll up the rim, but over the long run, I believe Restaurant Brands’ stock will be a winner.