Meet the High-Yield Dividend Stock Bill Ackman Has Owned for Over a Decade. Here’s Why It’s a Great Buy in August.

Pershing Square Capital Management, run by founder Bill Ackman, is very selective about the stocks it decides to invest in.

Compared to most hedge funds, Ackman and Pershing Square hold very few stocks — only about a dozen, according to the latest first-quarter 13F filing.

One that he has held for almost 12 years now is Restaurant Brands International (QSR +1.33%), which owns several quick-service and fast-food restaurant chains, including Burger King, Tim Hortons, Popeyes, and Firehouse Subs.

It may seem out of place within a portfolio that includes Amazon, Microsoft, Alphabet, and Meta Platforms, but it features certain qualities that appeal to Ackman.

“QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from its four leading brands: Tim Hortons, Burger King, Popeyes, and Firehouse Subs,” Ackman wrote in the annual letter to shareholders.

$58 million in dividend income

By calling it a capital-light growing annuity, Ackman means it provides steady, reliable returns with very little overhead. Most of its income comes from royalty and franchise fees, as it doesn’t own most of the restaurants and their physical assets. Ackman is likely also referring to its excellent dividend, which pays out millions to him annually.

Restaurant Brands stock pays out a healthy $0.65 per share dividend, which it has raised annually for 10 straight years. The dividend is paid out at a yield of 3.49%, which is 3 times higher than the S&P 500 average dividend yield.

Ackman owned 22.6 million shares of QSR at the end of the first quarter, making it Pershing’s fifth-largest holding, accounting for about 14% of the overall portfolio.

Restaurant Brands International

Today’s Change

(1.33%) $0.97

Current Price

$73.89

Key Data Points

Market Cap

$33BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$72.47 – $74.42

52wk Range

$61.33 – $81.96

Volume

2.6M

Avg Vol

3.1M

Gross Margin

48.64%

Dividend Yield

3.44%

Those 22.6 million shares, paying out a quarterly dividend of $0.65, would generate about $17.7 million in income per quarter and roughly $58.8 million in dividend income per year. So, you can see why Ackman likes the stock, particularly now in a market where returns have been choppy and volatile.

Burger King in turnaround mode

Restaurant Brands released its second-quarter earnings on Aug. 6, and they were generally strong. The company topped revenue and earnings estimates, yet QSR’s stock price was drifting about 2% lower.

Restaurant Brands saw systemwide sales grow 6.4% and comparable sales rise 3.8% in the quarter. Revenue increased 5% to $2.5 billion while adjusted earnings surged 14% to $1.07 per share.

The Burger King turnaround is real, as the burger chain saw an 8.6% increase in comparable store sales and a 13% jump in operating income.

That was offset by a 5.2% drop in comp sales and a 5.4% dip in operating income for Popeyes. Also, Tim Hortons, the company’s most profitable property, only saw a 0.1% increase in comp sales and a 3.2% rise in operating income.

The mixed results among the chains may have given some investors pause. In addition, while the company reaffirmed its guidance for the full year, it did not raise it. That may have been a red flag considering Burger King’s rapid turnaround.

Why Restaurant Brands is a buy in August

I think the 2% dip makes it a good time to buy Restaurant Brands stock, mainly because of the great dividend. But the Burger King turnaround seems to be taking hold, and the company is continuing to see a surge in international markets.

Its international revenue grew 9.8% in the quarter, topping all other segments, and its international operating income rose 13.2%, matching Burger King’s jump. International was the second-most profitable segment, with $194 million in adjusted operating income, behind only Tim Hortons’ $287 million.

The stock is also a decent value, based on its forward earnings expectations, with a forward price-to-earnings (P/E) ratio of 13.

Wall Street analysts expect the stock to rise 15% over the next 12 months with a median price target of $85 per share. That’s a pretty solid return, in addition to a great dividend.