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Drive-through strengths help McDonald’s, Tim Hortons parent

McDonalds boosts dividend for 44th year, Restaurant Brands adds contactless pay to ordering kisoks

The pandemic has sent the economy moving in different directions with boom times in some areas, depression in others, and a steady recovery since March in a third group.

It depends on where your investments lie whether the impact is short and sharp or long and drawn out. Here are updates on two companies in the fast food industry that are quickly recovering.

A McDonald’s restaurant in Beijing. Credit: McDonald’s

McDonald’s (NYSE: MCD) is the world’s largest fast food company, with 337,000 restaurants in 120 countries. More than 44% of its outlets are in Asia, or other emerging markets.

The stock was pummeled last spring and a quarter of its stores globally were forced to close. But things have steadily improved. Drive-through traffic has been brisk, showing how much we crave the comfort of familiar products. The shares moved up from a March low of $124.23 to close Oct. 30 at $214.95. At the current price, the shares are up 7.8% year-to-date.

McDonald’s reported its third-quarter results two week ago, noting a broad recovery in the U.S., its largest market. That offset weaker international sales. In the three months ended Sept. 30, global same-store sales fell 2.2% from a year earlier, which was better than expected.

The company kept a 44-year record of dividend increases alive, raising the quarterly payout by 3.2% to $1.29 per share with the December payment. The dividend yields 2.24% at current prices.

Restaurant Brands International (TSX, NYSE: QSR) is the third-largest global fast-food operator with $32 billion in system wide sales annually and operations in more than 100 countries.

It has 26,000 stores, of which 70% are Burger Kings and 19% are Tim Hortons. The other 11% are Popeye’s Louisiana Kitchen locations.

Working from home trends have hurt Tim Hortons morning sales.

The stock has recovered from its March low of $36.48 but continues to trade in a narrow range. At the current price of $70.33, (Oct. 30) RBI’s shares are down 15% year-to-date.

The company released third-quarter results Oct. 27, reporting that as of September sales are back up to 94% of comparable 2019 numbers.

More than 96% of all locations were open at the end of the third quarter with Latin America its weakest segment. At the peak of the spring outbreak about 50% of locations were closed.

Cash flow rose $400 million in the quarter. Revenue declines at Tim Hortons and Burger King were offset by gains at Popeye’s.

Net income for the quarter was $223 million (RBI reports in U.S. dollars) or $0.47 per diluted share. That was down from $351 million ($0.75 per share) a year earlier.

CEO Jose Cil said in a conference call that RBI restaurants have made steady progress reopening, but disruptions caused by the pandemic continue to be a challenge. A case in point is Tim Hortons, where same-store sales fell 12.5% as fewer people drove to work.

RBI is upgrading 10,000 Canadian and American drive throughs with more sophisticated outdoor digital menu boards that allow contactless payment.

The $2.08 annual dividend yields 3.91%.

This is an edited version of article that appeared in the Internet Wealth Builder on November 2, 2020.

Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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