Can You Still Make Money Owning Burger King's Stock?

Burger King Worldwide's lead over McDonald's and Wendy's in gross margins should continue this quarter. That's one of three big keys to watch.

Apr 24, 2014 at 4:30PM

Slow growing fast food stocks don't make many (good) headlines these days. It makes you wonder if a fast food chain like Burger King Worldwide (NYSE:BKW) can still bring home the bacon? By looking for a few keys on its latest earnings report, and comparing it to competitors McDonald's (NYSE:MCD) and Wendy's (NASDAQ:WEN), we can decide. 

Burger King reports first quarter earnings this Friday, April 25. Here are three key points to watch. 


Source: Burger King

Is Burger King a dividend stock?
Peter Lynch once said that you should "know what category your stocks fall in." By that he meant, of course, that you wouldn't treat a fast grower the same way you would a dividend stalwart. By knowing what category an investment matches, and what goals management has for shareholders, you can appropriately set your expectations. The problem is, I don't know exactly what Burger King wants to be.

That's a theme we'll touch on a few times, with some further analysis, but for starters look at Burger King's dividend plan. Fast growers are ill-advised to pay hefty dividends (needed for capital reinvestment), but the opposite is true of slow growers. So which is Burger King? It's paltry dividend of 1.1% is customary of a fast grower, but its competitors are slow growing dividend payers. Wendy's pays out a high yield of 2.4%, and McDonald's is even higher, 3.2%. 

Burger King grew earnings 22.4% last quarter, margins also expanded, and revenue growth was slow .  Burger King has the look and feel of a high dividend payer, but it remains to be seen if it will become one. It's unlikely that capital expenditures are the reason for the low yield; Wendy's has taken on a similar strategy of store expansion, and remodeling, all while doubling its dividend over the past two years. So the only logical reason to not raise the dividend, would be if management feels that Burger King has a rapid growth opportunity. That may be the case, but if so, Burger King should deliver comparable sales higher than Wendy's (2.5%-3.5%) 2014 guidance.  

For this quarter, I'm hoping that management clarifies what it's ultimate objective for shareholders is. If Burger King's dividend stays "as-is," perhaps growth expectations should be higher. 

Margin expansion thanks to re-franchising
Burger King followed Wendy's lead by selling 360 restaurants back to franchisees in 2013, and remodeling 30% of its stores. Franchising is a lower risk, non-capital intensive, model; and a fresher store look should lead to higher revenue per store. Thanks, in part, to this strategy, Burger King's  margins are now much fatter than McDonald's and Wendy's (despite Wendy's similar strategy). 

BKW Gross Profit Margin (Quarterly) Chart

BKW Gross Profit Margin (Quarterly) data by YCharts

Margins should continue to expand thanks to these steps; let's look for margins to (at least) stay steady. Further, last quarter same-store sales were up 1.7%, and we should faster growth thanks to better looking stores.

Picking growth, selectively
In the past Burger King had essentially copied many McDonald's items, via the "Big King" and premium coffee, with mild success. Last year, we saw a welcome "re-tooling" of that strategy, as Burger King launched some successful, original, products.  Popular items such as Satisfries and sweet potato fries were well received by customers, and Burger King's earnings grew substantially. There are many fast food examples (i.e. Dorito's tacos) that illustrate how creative menu items win. I'm hoping that management details plans to innovate further during this call.

Finally, it's worth noting that Burger King also opened 670 net new restaurants last year, and is planning on doing the same this year. I'm hoping that management tells us what percentage of new stores will be franchises, and how many will be in international locations. It makes sense for the company to open a higher percentage of franchises, in foreign locations with more room to run, given its level of market saturation. A strategy like that, coupled with some new menu innovation, could be a growth catalyst for this business.


First Burger King pictured. Source: Burger King

What category does Burger King fit?
I think most investors are pleased with Burger King's recent performance, but would prefer to know if management favors operational effectiveness over growth. In my opinion, they should favor operational effectiveness and seek growth selectively.

During this earnings release look for a higher dividend, and strong guidance on new international stores. That coupled with more franchising, and innovative menu items, should be a winning formula for Burger King. 

2 stocks changing the retail world
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers