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Keep watching these two ‘triple-threat’ stocks

Jennifer Dowty, CFA, Globe Investor's in-house equities analyst, writes exclusively for our subscribers at Inside the Market.

During this earnings season, we have seen numerous "triple-threat" stocks. These are companies that have reported better-than-expected quarterly results, announced dividend increases and have realized strong positive price momentum – a winning formula for investors. These positive attributes provide a solid foundation for a stock to go higher.

Discussed below is a pair of such triple-threat stocks.

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Restaurant Brands International Inc.

Oakville, Ont.-based Restaurant Brands International has more than 20,000 quick-service restaurants around the world under its core banners, Tim Hortons and Burger King. The company has a successful business model with virtually all of its restaurants franchised, providing the company with steady cash flow.

The stock has been an excellent investment for investors over the years, rising from the mid-$45 level at the end of 2014 to more than $75 in late-February, 2017. Analysts are forecasting further upside for the share price with the consensus one-year target price at just more than $79.

Last month, the company announced the acquisition of Popeyes Louisiana Kitchen Inc., a successful quick-service restaurant chain with more than 2,600 locations worldwide, mostly in the United States. Popeyes may provide the recipe for the company's continued success. The pending acquisition will extend the company's core offerings into a new menu category – chicken. If history repeats itself, management may unlock significant shareholder value through cost-cutting initiatives and operational improvements.

Growth is forecast to continue. The Street is forecasting earnings per share (EPS) to reach $1.82 (U.S.) in 2017, and are further anticipated to climb to $2.39 in 2018.

The company preannounced its fourth-quarter results, and a week later, reported earnings ahead of expectations. Earnings per share doubled to 50 cents from 25 cents realized in the prior year. Adjusted EPS was 44 cents, up 38 per cent year over year, and above the consensus estimate of 42 cents.

Last month, the company announced a 6-per-cent dividend increase, raising its quarterly dividend to 18 cents a share from 17 cents a share. This equates to a dividend yield of just more than 1 per cent.

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On a valuation basis, the stock is trading at a price-to-earnings multiple of more than 22 times the 2018 consensus estimate, below its historical average.

CCL Industries Inc.

Toronto-based CCL Industries is a global specialty packaging company providing services to large multinational customers through its four core business segments: Label, Avery, Checkpoint and Container. CCL Label, the company's largest segment, representing 63 per cent of sales in 2016, produces labels on bottles and containers for wine, soft drinks, laundry detergents and beauty products, for instance.

The long-term positive price momentum remains intact. The share price's ascent over the past five years is impressive, and from a near-term perspective, the stock's price return is equally attractive. The share price has rallied approximately 30 per cent since mid-December.

Before the market opened on Feb. 23, the company reported better-than-expected fourth-quarter financial results and also announced a dividend increase and proposed stock split. This marked the 25th consecutive quarter of year-over-year earnings-per-share growth. Organic growth rates were solid across several of its business segments. For instance, organic sales growth was 6.9 per cent for the company's label segment. Furthermore, the company reported record return on equity in 2016, rising to 23.5 per cent. The news sent the share price soaring more than 6 per cent that trading day.

The Street is forecasting earnings growth to continue. The consensus EPS estimates are $12.96 (Canadian) in 2017, and forecast to rise 11 per cent to $14.39 in 2018.

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Given the company's strong financial position and positive outlook, the company announced a 15-per-cent dividend hike, raising the quarterly dividend to 57.5 cents a share from 50 cents. This equates to an annualized dividend yield of approximately 0.8 per cent. The dividend appears sustainable with the payout ratio at just 18 per cent of adjusted earnings in 2016.

Another positive announcement was a proposed five-for-one stock split, subject to shareholder approval, which would make the stock more affordable, potentially expanding the shareholder base. As well, the stock's liquidity would improve with an increase in the number of shares outstanding. According to Bloomberg, the stock is currently trading at an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple of approximately 11.3 times the 2017 consensus estimate, which is slightly above its three-year historical average. This multiple may have room to expand. The consensus one-year target price is over $323, suggesting the stock may realize a respectable low double-digit return over the next year.

As always, I strongly encourage readers to consult a financial adviser, consider potential tax implications and do their own proper due diligence before taking any investment action.

The author does not personally own shares in the securities mentioned in this story.

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About the Author
Equities analyst

Jennifer Dowty, CFA, is an equities analyst at The Globe and Mail. She has approximately 18 years of experience working in the financial industry, 14 of those years were at Manulife Asset Management, where she worked her way up to become an Equities Portfolio Manager. More


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