Tim Hortons hikes dividend 31%

Coffee-and-doughnut chain Tim Hortons Inc. is boosting its dividend by 31 per cent after reporting a jump in fourth-quarter profit thanks to a big gain from the sale of its interest in Maidstone Bakeries.

Profit more than triples

Coffee-and-doughnut chain Tim Hortons Inc. is boosting its dividend by 31 per cent after reporting a jump in fourth-quarter profit thanks to a big gain from the sale of its interest in Maidstone Bakeries.

Fourth-quarter net earnings increased to $377.1 million, or $2.19 per share, from $91 million, or 51 cents per share, in the comparable quarter of the prior year, the company said Wednesday.

Included in its earnings was a pre-tax gain of $361 million from the sale of its 50 per cent stake in Maidstone, an Ontario bakery the company was forced to sell last August after its Swiss partner invoked a contract provision forcing the Canadian fast food chain to either buy or sell.

Three-month stock chart for Tim Hortons Inc. on the TSX. (CBC)

Sales slipped to $437 million from $464.6 million a year ago, which was partly due to the impact of an extra week in the fourth quarter of 2009 for accounting purposes. Overall revenue, which also includes revenue from Tim Hortons franchise operations, declined 3.5 per cent to $643.5 million.

Same-store sales, sales at locations open at least a year, were up 3.9 per cent in Canada and 6.3 per cent in the United States.

"Our fourth-quarter results include a number of significant items but our underlying business enjoyed strong same-store sales performance, and we met or exceeded our key goals for the full-year," president and CEO Don Schroeder said in a statement.

"Our strategy execution is focused on continued growth in Canada, accelerated, targeted investments in our core U.S. markets to drive further progress, and beginning to lay the seeds for longer-term international growth."

The dividend hike will increase the monthly payout on Tim Hortons stock to 17 cents per share.

Share buyback

The company said it plans to buy back up to 10 per cent of its stock in 2011 — about $445 million worth —continuing a move to reduce its public float that began last year when it received the cash from the Maidstone sale. Companies typically buy back shares to reduce the number outstanding and strengthen the value of the remaining stock in the public market.

Earnings per share are projected to come in between $2.30 and $2.40 in 2011, with same-store sales growth between three and five per cent in both Canada and the U.S. and capital spending between $180 million and $200 million, the company said.

"We have a focused strategic roadmap designed to drive long-term shareholder value," Schroeder said.

"In 2011 we plan to continue investing in future growth as we execute our operational strategies and we believe we are well-positioned for continued success."

For all of 2010, the chain earned $624 million or $3.58 per share, compared to $296.4 million, $1.64 per share, in 2009. Annual revenue increased four per cent to $2.54 billion.

Based in Oakville, Ont., Tim Hortons is Canada's biggest restaurant chain and the fourth-biggest in North America with more than 3,700 restaurants on the continent.

The company has recently been expanding its market, with a master license agreement with Dubai-based Apparel Group to open up to 120 restaurants in the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman over the next five years.

In December, Tim Hortons said increasing emails from Americans asking for better access to its products led to the opening of an online store to ship ground coffee tins, boxed tea, and mugs to American customers at identical prices as in-store.

In November, it began accepting Interac debit cards as payment across the country after an extended test period in Western Canada showed cards would not slow down cash registers.

Late last year, Tim Hortons said it would close 54 locations in New England, a money-losing market for the company, where it faces strong competition from locally-headquartered Dunkin Donuts.

Since opening its first U.S. store in Buffalo, N.Y., in 1985, Tim Hortons has expanded to over 600 stores in a dozen states — including Michigan, Ohio, Kentucky and West Virginia — and plans to open another 300 locations over the next three years.