McDonald’s (NYSE: MCD) is perhaps the best-known fast food giant in the world. Its namesake restaurants cover the globe, and the company has one of the most valuable brands in the world as well. Accordingly, McDonald’s continues to generate the lion’s share of the attention in this space, and for good reason.
That said, Canadian quick service restaurant parent Restaurant Brands (TSX: QSR) remains a top option as well for investors looking to gain exposure to this space. Restaurant Brands is the parent company of Tim Hortons, Burger King, and Popeyes, and is another titan in the fiercely competitive fast-food sector. Although McDonald’s has long held the top spot in the world, Restaurant Brands is emerging as a strong rival, especially when viewed through the lens of the Toronto Stock Market.
Let’s dive into which company may be the better pick, and why I’m inclined to lean toward the Canada-based company, at least for now.
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Portfolio diversification matters
Just as is the case for individual investors, having one’s eggs spread across multiple baskets is generally a good thing in the world of investing. For companies, having diversified income streams can help level any near-term turmoil that arises in a particular sector.
This is one of the key differentiating factors between McDonald’s and Restaurant Brands I think is worth pointing out. Restaurant Brands has done a good job of adding different banners under its umbrella which service different markets. And while the company’s brands certainly don’t compare to that of McDonald’s, it’s also true that these are banners that are becoming much more recognized around the world.
As Restaurant Brands continues to expand globally, one could argue that their footprint is likely to expand much faster than McDonald’s, which has already gone through the majority of its growth cycle thus far.
Financial performance improving
McDonald’s is going to be the winner if one looks at both companies’ underlying fundamentals right now. Restaurant Brands has seen some missteps in past quarters, and the company’s share price has been dinged accordingly. On the flip side, McDonald’s stock price is trading at its all-time high, and the company appears to be firing on all cylinders.
The thing is, I think Restaurant Brands has plenty of room for improvement in the coming quarters, and the company’s valuation multiple is much more attractive when compared to McDonald’s (a forward price-earnings ratio of 12.5 times compared to McDonald’s 25 times).
Bottom line
In terms of the balance of risks at play between the two companies, I think the clear winner from a valuation perspective is Restaurant Brands. Additionally, this is the superior dividend stock, with QSR stock providing investors with a 3.7% yield compared to McDonald’s 2.3%.
Over the long term, both companies should continue to provide relative portfolio stability. But if I had to pick between the two, QSR stock looks much more attractive right now relative to MCD stock.
