Fast food stocks have been really sinking in recent quarters. With tech stocks leading the charge on the broad market rebound, many investors may be rotating from their more recession-resilient defensive dividend plays back into the high-growth and AI plays. Of course, it’s impossible to tell when the next rotation will happen or if AI will deliver on the front of earnings in a way that could provide even more lift to the TSX Index and S&P 500 Index over the coming 18 months.
Either way, I’d treat the latest pullback as more of an opportunity to put new money to work in a name that could have your TFSA or RRSP portfolio’s back come the next market-wide correction. Like it or not, corrections tend to happen every year, give or take a few months. And it’s always important to be ready to ride the 10% or so plunge lower, while keeping your cool and scooping up names that may have overswung to the downside in the midst of a panic.
As markets shrug off tariffs and the conflict in the Middle East, perhaps now is a time to start playing a bit of defence as other investors look to pile back into the most exciting growth trades. With the IPO market booming and the tech-heavy Nasdaq 100 making fresh highs a few days ago, it’s the anti-growth trade that I think could offer investors a better deal for the summer.
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McDonald’s
McDonald’s (NYSE:MCD) dipped into correction territory last week, as the stock sagged following a small wave of analyst downgrades (there are far more neutral ratings on the stock than overweight ratings these days). Undoubtedly, it’s quite a pain as an investor to have one downgrade on a stock in your portfolio, let alone a handful.
Of course, the Golden Arches faces some pretty stiff growth headwinds ahead. Inflation’s effect on the consumer, the weight-loss impact, and tough competition in the fast-food scene are just a few yellow flags to have on one’s radar for the summer.
In fact, I’d argue that these headwinds have been well-known over the last 18 months. With a fresh 10% discount on shares and a modest 25.1 times trailing price-to-earnings (P/E) multiple, I’d look to load up while the yield hovers close to 2.5%. At the end of the day, McDonald’s is one of the names to hang on to for the long haul. And with a still-strong value proposition for the second half, I’d not be too surprised if a V-shaped bounce is in order once the latest correction works its course.
A&W
A&W Food Services of Canada (TSX:AW) is another stellar fast-food option for investors looking for a decent dividend and capital gains potential. The stock yields 3.6% at the time of writing, and at just shy of three times price-to-sales (P/S), the name is quite cheap, especially for those who expect a potential recession in the second half of 2025.
With an impressive value menu, I wouldn’t bet against the home of the Burger Family, especially as the company looks to win over the business of inflation-rattled consumers seeking to stretch their dollar as far as it can go. In my view, A&W’s beefy dividend is just part of the reason to consider loading up at under $37 per share.
So, whether you’re a fan of McDonald’s Big Mac or A&W’s Grandpa Burger, I do think both dividend payers could help defensive-minded investors play defence at a reasonable price, just in time for the second half.
