As the economy has worsened over the last few years due to surging inflation and rising interest rates, many investors and analysts have understandably been concerned about how even the best restaurant stocks would be impacted.
Eating out at restaurants is a discretionary expense and often one of the first areas where consumers cut back when budgets tighten.
As a result, it made sense that many of these stocks sold off significantly, both as the economy initially weakened and throughout the last few years, as sales and profitability were affected.
However, among all the discretionary stocks across various sectors, one that has held its value particularly well—and actually offers significant long-term potential at today’s prices—is Pizza Pizza Royalty (TSX:PZA), making it one of the best restaurant stocks to invest in right now.
Why is Pizza Pizza the most reliable stock in a discretionary industry?
Although Pizza Pizza operates in a discretionary industry, it’s far less volatile and more reliable than many other discretionary businesses, especially compared to other restaurant stocks. There are several reasons for this.
First, the majority of restaurant companies listed on the stock market are traditional sit-down establishments. Pizza Pizza, however, offers large meals at affordable prices but is also a convenient option for quick snacks—particularly late at night when many competitors are closed.
This combination of being one of the lowest-cost and most convenient options ensures much of Pizza Pizza’s sales are “sticky,” meaning they remain relatively stable and consistent quarter after quarter.
Additionally, Pizza Pizza benefits from being a large and established business. It has the financial resources to spend heavily on advertising, is a well-recognized brand across Canada, and operates its own app and in-house delivery service. These factors allow it to keep costs low and maintain competitive pricing—a key element of its value proposition.
From an investor’s perspective, another critical advantage is that Pizza Pizza doesn’t own most locations in its royalty pool. Instead, it collects a royalty on the sales at each franchise.
This means investors are less concerned with the profitability of individual stores and more focused on overall sales growth—a major reason why Pizza Pizza is one of the best restaurant stocks to invest in right now.
As long as aggregate sales continue to grow, Pizza Pizza stock will generate increasing revenue. And with its costs remaining largely flat year over year, revenue growth typically translates directly into higher income and, ultimately, a growing dividend for investors.
This makes Pizza Pizza not just a discretionary stock but a reliable and consistent generator of passive income.
Why is Pizza Pizza one of the best restaurant stocks to invest in right now?
In addition to its reliability and appeal for passive-income investors, several other factors make Pizza Pizza one of the best restaurant stocks to invest in today.
First, the stock is still trading below its recent highs, offering investors a discount to buy in now—especially for a stock that isn’t typically volatile. With the current valuation, its dividend yield has risen to approximately 7%, which investors can lock in today.
Another compelling reason to buy Pizza Pizza now is its growth potential. Historically, Pizza Pizza has been a dependable dividend stock, delivering modest growth of around 1-2% annually. Therefore, the primary reason for owning it was its significant and stable dividend yield.
However, today, the stock offers more growth potential than ever, particularly as it has already begun expanding into Mexico with new locations. This international growth initiative could provide a meaningful boost to sales and, by extension, to the dividend over time.
Therefore, while Pizza Pizza trades below its 52-week high and offers a yield of roughly 7%, there’s no question it’s one of the best restaurant stocks to invest in right now.
