It Might Not Be A Great Idea To Buy Restaurant Brands International Limited Partnership (TSE:QSP.UN) For Its Next Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Restaurant Brands International Limited Partnership (TSE:QSP.UN) is about to go ex-dividend in just 4 days. You can purchase shares before the 22nd of March in order to receive the dividend, which the company will pay on the 6th of April.

Restaurant Brands International Limited Partnership's upcoming dividend is US$0.53 a share, following on from the last 12 months, when the company distributed a total of US$2.12 per share to shareholders. Based on the last year's worth of payments, Restaurant Brands International Limited Partnership has a trailing yield of 3.3% on the current stock price of CA$79.28. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Restaurant Brands International Limited Partnership has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Restaurant Brands International Limited Partnership

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Restaurant Brands International Limited Partnership paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 119% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Restaurant Brands International Limited Partnership's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Restaurant Brands International Limited Partnership paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Restaurant Brands International Limited Partnership's earnings have been skyrocketing, up 32% per annum for the past five years. Restaurant Brands International Limited Partnership's dividend was not well covered by earnings, although at least its earnings per share are growing quickly. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Restaurant Brands International Limited Partnership has delivered 34% dividend growth per year on average over the past six years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Restaurant Brands International Limited Partnership? While it's nice to see earnings per share growing, we're curious about how Restaurant Brands International Limited Partnership intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Restaurant Brands International Limited Partnership.

Although, if you're still interested in Restaurant Brands International Limited Partnership and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 2 warning signs we've spotted with Restaurant Brands International Limited Partnership (including 1 which is potentially serious).

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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