The legendary golden arches just received a hat-trick of analyst downgrades over the past week. And while McDonald’s (NYSE: MCD) stock may be reacting negatively, with a potential correction that may not be too far off, I do think that investors shouldn’t make too much of the matter as many of the reasons for the downgrades seem mostly known (and probably well baked into the shares of fast-food firms at this juncture). In any case, shares of MCD aren’t the cheapest in the world, and with a dividend yield that’s shy of 2.5%, I think that income investors can do a lot better with some other fast-food firms that may offer more dividend yield for a value-menu kind of price!
In this piece, we’ll have a look at two TSX-traded quick-serve restaurant stocks that have “beefier” yields going into July. Furthermore, their valuations seem more palatable as the industry heads into a rather hazy macro climate.
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Restaurant Brands International
Restaurant Brands International (TSX: QSR) is the famed fast-food king behind Burger King, Tim Hortons, Popeye’s Louisiana Kitchen, and Firehouse Subs. Each one of the brands has a fairly high growth ceiling, but investors will need to be patient with the name as management moves forward with its international expansion plan with prudence.
At just shy of $95 per share, QSR stock yields 3.6%, which is far richer than MCD stock’s sub-2.5% yield, even after the recent wave of selling pressure that followed the trio of analyst downgrades. At 23.4 times trailing price-to-earnings (P/E), QSR stock looks slightly less expensive than MCD stock, even though the name has its fair share of challenges. And while Tim Hortons had a rather rough recent quarter, I do think that the growth potential in its Firehouse Subs and Popeye’s brands could start picking up some of the slack in the next 10 years and beyond.
If you’re in the market for a lowly correlated name (0.63 beta) with a fat dividend, perhaps QSR stock is worth a pickup while it’s down over 15% from its all-time highs.
Pizza Pizza Royalty
Up next, we have Pizza Pizza Royalty (TSX: PZA), a 6.2% yielder that’s off to a hot start to the year, now up just shy of 14% year to date. No doubt, food inflation has been an issue, and with one of the better value propositions in the pizza scene, Pizza Pizza has really benefited from what I view as some share-taking. Indeed, Pizza Pizza’s marketing campaign seems to have hit the consumer price spot and appetite for its pizzas.
Whether we’re talking about lower prices (inflation-proof pizzas) or heftier slices, the firm seems to offer a stellar bang for the buck, even with delivery included. Though time will tell what happens next with food inflation, I’m inclined to view Pizza Pizza as one of the more inflation-durable quick-serve restaurant stocks on the TSX Index right now. Like QSR, the beta is fairly low at around 0.67. When combined with the rich yield, you’re getting a steady ship if you foresee tougher tides on the horizon.
My takeaway? It’s time to grab a slice while shares are still cheap.
