Tim Hortons' Near-Religious Following Protects Dividends

| About: Restaurant Brands (QSR)

When explaining Tim Hortons (THI), the Canadian coffee chain, to those not familiar with the brand, it is difficult to stress how ingrained it is in Canadian society. However, if you're looking for a defensive, long-term growth stock, Tim Hortons is worth considering for your retirement portfolio. And with their fourth quarter earnings release coming up on February 23, it is a good time to put the stock back in focus.

Many Canadians couldn't think of starting their day without their double-double from Tim's. (That's two cream, two sugar in their coffee.) I jest when I call it an organized religion, but it isn't that far off. You'll find them in every corner of Canada, from downtown Toronto to rural Quebec and northern Alberta. It would be a career ending mistake for a Canadian politician to suggest they don't, at least occasionally, have coffee or tea at Tim's.

There are 7000 Dunkin Donut (NASDAQ:DNKN) restaurants and 17,000 Starbucks (NASDAQ:SBUX) locations in the US. With the US population around 307 million, that means one Dunkin Donuts store for roughly every 44,000 Americans, and one Starbucks for every 18,000 Americans.

By comparison, there are 3200 Tim Hortons stores in Canada. With a population of roughly 34 million, that's one Tim Hortons for every 10,600 Canadians, meaning far deeper market saturation in Canada than even Starbucks has in the US.

And over 95% of these stores are full restaurants, with several staff and at least a dozen tables. This prevalence of Tim Hortons surprises no one who has spent anytime in Canada. As an example of Canadians' devotion for the brand, when Tims (as it is affectionately known) recently changed around its cup sizes, it was tough not to see a news article, youtube video, Facebook status or tweet expressing some opinion on the matter. It really is a cultural phenomenon, and it would be difficult picturing Tim Hortons disappearing from the Canadian landscape anytime soon.

Tim Hortons sells, primarily, coffee and donuts, as you would expect, but has increasingly added breakfast, lunch and dinner items in the last couple of years in an effort to raise the average patron's spending.

And even though it's largely restricted to Canada, despite some smaller US and overseas operations, it still has a market capitalization of $8 billion. (Those non-Canadian operations do provide a potentially large upside with low risk, although to date they have been underwhelming.)

Over the last year, THI has slowly worked its way upwards from $40 to $50 a share. The company also has a good history of raising its dividend and buying back shares. It yields just 1.339%, but with a payout ratio of 26%, there is room for an increase.

Last quarter revenue increased 8.4% and net income rose 14.9% on a year over year basis. Even with so many stores and a weak economy in most of Canada, Tim Hortons found room for respectable and steady growth.

The potential downside may be more limited room to expand in the Canadian market, but their current highly profitable locales should continue to see their near-religious loyal following protecting those dividends.

If you're looking for safe, long-term, dividend paying stock picks, and perhaps some exposure to the Canadian economy, Tim Hortons is worth a look.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.