Ten Canadian Restaurants With Growing Dividends

Since my Five Canadian Utility Companies With Growing Dividends post proved both popular and personally useful, I decided to explore another sector I am interested in: Canadian restaurants.  As indicated by my Investment Holdings, I am currently only invested in one restaurant - McDonald's Corporation. Given my feeling McDonald's is overvalued (P/E ~ 24X), I wanted to look for Canadian restaurants with growing dividends. The below table contains the ten Canadian restaurants who managed to increase their dividend in the past year.

Company Name	Div Yld%	LTM Payout %	P/LTM EPS	DPS 1Yr Gr %	DPS 3Yr Gr%	DPS 5Yr Gr%
Diversified Royalty Corp. (TSX:DIV)	9.67	293.0	32.9	533.3	-	-
Boston Pizza Royalties Income Fund (TSX:BPF.UN)	7.44	108.5	22.8	7.82	3.68	0.503
Pizza Pizza Royalty Corp. (TSX:PZA)	6.12	104.5	16.6	3.01	4.34	(1.15)
Keg Royalties Income Fund (TSX:KEG.UN)	6.01	93.8	11.4	5.76	2.03	(3.61)
A&W Revenue Royalties Income Fund (TSX:AW.UN)	5.29	95.7	19.5	4.27	1.41	2.33
Imvescor Restaurant Group Inc. (TSX:IRG)	3.61	26.8	11.9	300.0	-	(23.2)
Canlan Ice Sports Corp. (TSX:ICE)	2.32	NM	NM	33.3	0	21.7
Cara Operations Limited (TSX:CAO)	1.37	11.3	13.9	10.9	-	-
MTY Food Group Inc. (TSX:MTY)	1.33	28.6	24.0	16.9	20.9	35.8
Restaurant Brands International Limited Partnership (TSX:QSP.UN)	1.15	78.4	51.4	444.4	-	-

Here are some observations regarding the ten companies:

- Diversified Royalty Corp and Canlan Ice Sports are not solely restaurants. Diversified Royalty Corp also receives royalties from an oil change and realty franchises, while Canlan operates sporting facilities, some of which have restaurants onsite.
- The high payout ratios for the top five companies can be partly explained by their business structure of receiving and distributing royalty and licensing payments vs the actual operation of restaurants.
- The only companies on the above list with revenue generated outside of Canada are Restaurant Brands International (Tim Hortons and Burger Kings operating in over 100 countries) and MTY Food Group (10% of revenue coming from the US and the Middle East).
- Despite their impressive record of dividend growth, a recent Globe and Mail article on MTY explained why the majority of analysts that cover the company have negative views on its prospects.
- The newest member of the list is Cara Operations which went public in April 2015. In March 2016, Cara announced they had acquired the 117 St. Hubert restaurants, mainly in Quebec for $537M. As a Quebecer, I can confirm that St. Hubert's is ridiculously popular across the province and the acquisition has the potential to be a huge win for Cara.

Of the above ten restaurants, Pizza Pizza, A&W, and the Keg interest me the most. Their relatively generous dividend yields along with their recent history of dividend growth are impressive. None of the three seem expensive with P/E ratios under 20X. A&W's marketing has established a clear niche for them as a higher quality fast food operator who serve meat raised without hormones or steroids. Although I only tend to eat at the Keg once or twice a year, I am impressed with their constantly changing menu and high quality service. Although I am not a fan of Pizza Pizza's product, their brand recognition and low price points make them an obvious choice for budget friendly pizza. My further research will include looking at each company's geographical distribution of locations, historic same-store sales figures, the taxation of shareholder distributions, and royalty/licencing systems in place, among other things.

Do you own shares in any of the ten Canadian restaurants?