The financial markets are grinding through a lot of headwinds right now, with rising interest rates and persistent inflation creating obstacles for the economy. But the good news is that uncertainty compresses valuations for top stocks and gives long-term investors the opportunity to get more for their money.
One opportunity is top restaurant stocks that offer attractive yields right now. Starbucks (SBUX 0.47%) and Restaurant Brands International (QSR 1.03%) are world-class operators that have paid growing dividends for many years.
Here's why these two stocks are great buys right now.
1. Starbucks
Starbucks stock generally pays about half of its annual earnings per share to shareholders in dividends. The stock's current dividend yield is 2.2%, well above the consumer discretionary average of 1.9%.
A large base of over 38,000 stores brings in consistent sales every year which has driven steady growth for shareholders over the years. The company just increased the quarterly dividend payment by 7.5% to $0.57 per share, marking 14 consecutive years of dividend increases.
The company is coming off a strong year with double-digit growth in revenue and earnings, and management sees the momentum carrying into 2024. Management is following a strategy to improve store efficiency, profitability, and open more smaller format stores in the U.S., which could significantly expand its brand awareness and drive more profitable growth over the long term.
International markets remain a huge opportunity. Starbucks delivered double-digit revenue growth in overseas markets in the fiscal fourth quarter (ended Oct. 1), as it opened stores at a faster pace than the domestic market. It recently opened its 20,000th international store and is currently growing its international footprint by about 10% annually.
There is a vibrant global market for coffee that doesn't appear to be slowing down. Management is guiding for 15% to 20% earnings growth next year, the stock's above-average yield looks too tempting to pass up.
2. Restaurant Brands International
Top restaurant stocks can make great dividend investments, because the most successful franchises have enormous brand exposure with a large store footprint, generate above-average margins, and deliver predictable sales growth over time. This is why the next no-brainer dividend stock to buy right now is Burger King owner Restaurant Brands International.
In addition to Burger King, the company operates Tim Horton's, Popeyes, and Firehouse Subs. Together, it has a total footprint across these brands of about 30,000 restaurants, but each restaurant brand has a lot of room to grow.
The stock currently pays a yield of 3.3% and has increased its quarterly dividend for eight consecutive years. The company has delivered balanced growth in revenue and earnings. The long-term outlook for the fast-food industry is a tailwind for the business.
Over the next four years, the company's addressable market across the main quick-service categories of sandwiches, chained cafes, chicken, and burgers is projected to grow about 40% over 2022 to reach $619 billion, according to Euromonitor. RBI's leading brands should be able to grow consistently at that rate, if not more.
RBI has a tremendous runway for store openings worldwide. There is a gap of about 44,000 restaurants between the company's total restaurant footprint and its top competitors in each quick-service market, and that's just for North America.
Through a combination of acquisitions and existing store growth, RBI has grown revenue and free cash flow over the last 10 years by over 12% and 24%, respectively. It should continue to grow at double-digit rates for many more years, which should make it a great dividend stock.
