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Tim Hortons (THI) is definitely a Canadian symbol. Wherever you go in Canada, chances are you can find a Tim’s coffee 
However remote you may be … The growth of Tim Hortons has also crossed the borders. Tim Hortons has evolved with competitions by offering new kind of sandwiches above their offering of donuts along with integrating a Cold Stone ice scream bar.THI Quick Facts
- Stock Ticker: THI on both TSX and NYSE
- Market Cap.: 7.81B$
- P/E: 19.58
- Forward P/E: 16.797
- P/B: 6.69 (Price to Book)
- P/S: 2.51 (Price to Sale)
- P/CF: 11.58 (Price to Cash Flow)
- EPS: $2.58
- Beta: 0.18
- Liabilities to Equity Ratio: 0.88
- Quarterly Dividends: $0.21
- Dividend Yield: 1.66%
- Dividend Payout Ratio: 32.56%
- ROE: 35.03%
- 10 Year EPS Growth Average: 25.31%
- 10 Year Dividend Growth Average: 37.33%
- 52-Week Low: $45.11
- 52-Week High: $57.91
- 52-Week Range: 42.58%
THI Dividend Growth
In Tim Hortons, we have another 10/10 dividend growth candidate if they can keep it up for 4 more years. The chart below is simply marvelous, I can almost see a compound growth pattern developing. Pair that with its dividend payout ratio and the fact that we have a Canadian Dividend Aristocrats, THI is fitting the profile for dividend investors if you want to diversify in this sector.
Below is a table showing what a $5,000 investment would look like if you had invested with Tim Hortons (THI) 6 years ago. As you can see, the growth is mostly form the stock appreciation and not from the dividends as only 8 shares would have been bought over the time, but over time the dividend growth would show it’s compound growth ability. Six years is just not enough of a long period to see dividend at work.
Year | Dividends | Growth | Stock Price | Shares | Dividends | New Shares | Value |
|---|---|---|---|---|---|---|---|
| 2006 | $0.14 | - | $33.1 | 151 | $21.14 | 0 | $4998.1 |
| 2007 | $0.28 | 100% | $36.39 | 151 | $42.28 | 1 | $5494.89 |
| 2008 | $0.36 | 28.57% | $35.23 | 152 | $54.72 | 1 | $5354.96 |
| 2009 | $0.4 | 11.11% | $31.68 | 153 | $61.2 | 1 | $4847.04 |
| 2010 | $0.52 | 30.00% | $42.14 | 154 | $80.08 | 1 | $6489.56 |
| 2011 | $0.68 | 30.76% | $49.36 | 155 | $105.4 | 2 | $7650.8 |
| 2012 | $0.84 | 23.52% | $48.25 | 157 | $131.88 | 2 | $7575.25 |
THI Dividend Payout Ratio
THI has always been conservative on the dividend front. Keeping more of their cash for growth early and as their Canadian coverage became saturated, they started increasing their dividends to offset the growth I would assume. Their US exposure is small and it will probably take time to significantly grow their business as competition is different and the consumers are different So far, the payout ratio is in a very good range of safety.
THI EPS Growth
THI’s earnings per share is not stellar over the past 6 years. It’s not keeping up with the dividend growth and that can be a challenge over time. It’s not showing any troubles but past performance are not representative of future performance and it’s important to understand where it is going to grow those earnings.
Thoughts
I like their conservative approach to growing their dividends. They are definitely a recognized brand in Canada with a strong customer support for their coffee. I personally prefer the coffee at McDonald (MCD) which is reflecting how competitive the business Tim Hortons is in really is. Starbucks (SBUX) and McDonald (MCD) are far bigger than THI in the coffee business which means THI’s business need to continuously be strong.
Personally, I love their growth, their dividend growth, their payout ratio but I am held off by the stiff competition. It’s a small company compared with their competitors and they don’t have a stronghold on the market either. THI might have reached saturation in Canada with negative same store sales and they might initially be their own competition to growth.
Readers: Are you interested in THI? What’s your take on their future growth?
Full Disclosure: No position in THI at the time of writing. I do own MCD at the time of writing.
Disclamer: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk – see my full disclaimer for more details.
Great analysis. I just bought some THI last week. I like them for their earnings and dividends growth. Like yourself I also feel the thing that might limit their future profitability is the competition they’re facing, however I think this problem can be mitigated by investing in other large coffee companies as well. For example, I bought SBUX along with THI, and I already own MCD bought a year ago. Between these 3 large coffee players, if one loses customers or market share to another competing brand, that profit should still go to investors if we hold shares in them all. The only problem with this logic is that we don’t know if stronger competition will thin out profit margins eventually for all businesses in this space, but by the looks of how all 3 have a history of solid dividend growth I hope that won’t happen any time soon
Liquid recently posted..Investing in the Daily Grind
@Liquid
Looks like you have a plan to profit form the coffee beans
THI is high on my watch list, but as you point out earnings growth isn’t there. If you went back 5 years, just after they started paying dividends, this was a much un-loved stock. If you look deeper at their progress, you can see a lot of gains now coming from their US operations. It might be a few more years, maybe the next big market sell-off, but I’ll definitely be in at some point.
Canadian Dividend Blogger recently posted..CDZ Analysis : S&P/TSX Canadian Dividend Aristocrats
@Canadian Dividend Blogger
Thanks for stopping by! I’ll also keep on paying attention but I am not in a rush to purchase at the moment.
[...] Passive Income Earner reviewed Tim Hortons. [...]
I have an extremely small amount of THI. I just couldn’t resist owning a bit when it slipped in price since we eat at Tim’s whenever we travel by car. It’s entirely the WRONG reason to buy a stock, but I didn’t exactly bet my life savings on it. I wonder how many others buy THI from sentiment? I admit after some travelling to distant lands, I was actually smiling to see a Tim’s at the Vancouver airport. That’s the kind of brand goodwill that’s a bit hard to quantify.
I’m glad your analysis didn’t say “run away from this stock if you value your money.” I was a bit nervous to read it.
Thanks for the nice over view of the next high flyer. Many people are ignoring boring stocks like this and so all the better for investors.
[...] Income Earner @ The Passive Income Earner writes Dividend Stock Analysis: Tim Hortons (THI) – Is THI a worthy investment at this time? Did it saturate its Canadian [...]
[...] Income Earner @ The Passive Income Earner writes Dividend Stock Analysis: Tim Hortons (THI) – Is THI a worthy investment at this time? Did it saturate its Canadian [...]
[...] Income Earner @ The Passive Income Earner writes Dividend Stock Analysis: Tim Hortons (THI) – Is THI a worthy investment at this time? Did it saturate its Canadian [...]