Canadian TFSA investors seeking a good mix of income and capital appreciation over time can choose from many great fast-food options. Though there are more U.S.-traded restaurant stocks, investors on this side of the border may wish to stay domestic with their next purchase. Indeed, I do think there’s more value in the TSX Index these days in general.
Though fast-food stocks aren’t the most exciting plays in the world, they are able to make money even through hard times. In essence, they’re all-weather plays that investors can hang onto for years, if not decades, at a time. Of course, it makes more sense to be a bigger buyer when shares dip. And though fast-food stocks aren’t the cheapest they’ve been from a historical standpoint, I do think that the current environment setup may be slightly discounted by many investors.
Restaurant plays for steady passive income in a recession
At this juncture, fast-food stocks look more or less fairly valued. That said, we could be on the cusp of a recession that may actually not hurt demand for fast food! Undoubtedly, when times get tough, people will search for ways to save a couple of dollars here and there. When it comes to fast-food firms, they tend to offer far better value than that of dine-in restaurants. And in that regard, I do believe that fast-food stocks should trade at a greater premium in the face of an economic contraction.
Without further ado, let’s have a closer look at A&W Royalties Income Fund (TSX:AW.UN) and Restaurant Brands International (TSX:QSR), two TSX fast-food plays that offer income and relative value at current levels.
A&W Royalties Income Fund
A&W Royalties Income Fund is a royalty fund that offers a very compelling 5.5% yield. If you’re an income investor who also happens to love the A&W burger family, shares of AW.UN looks too good to pass up right now. Indeed, AW.UN isn’t a stock, it’s a royalties income fund and one that’s not exactly known for capital appreciation potential.
In any case, I do think A&W is a classic play that will help line the pockets of shareholders for many years (and decades) to come. It’s a cherished brand and one that can offer passive income seekers relative stability, even through the darkest of economic days. With a beta of around 1.1, shares are about as volatile as the broader market averages. At this juncture, I’d argue A&W has more than enough beef to keep investors satisfied, as markets look to go range bound in the second half.
Restaurant Brands International
Restaurant Brands stock has been heating up again, thanks in part to the upbeat mood that followed its latest quarterly result. Indeed, Burger King was a terrific performer of late, partly due to investments made in the past. As the company brings its four brands into the modern era, it will be really exciting to see how the firm will compete as the lights on the Canadian economy begin to dim a bit.
I think QSR could be in a spot to one up itself, as consumers continue moving from pricy dine-in restaurants to lower-cost fast-food options. For a while, I didn’t think Restaurant Brands would be able to reinvigorate Burger King (and Tim Hortons), as other rivals in the burger scene continued shining bright. With a strong quarter and lots of growth fuel left in the tank, I think investors can and should be excited about what’s to come now that management has the right formula down.
With a 2.9% dividend yield, QSR stock isn’t as bountiful as it was a year ago when its payout was closer to 3.3%. Still, I view the stock as a bargain for any Canadian investors, regardless of whether they’re in it for the passive income or growth potential.
Better restaurant bet?
As a gains-focused investor, I think there’s more total return to be had in QSR stock. It’s a wonderful business that’s actually done somewhat decent (when considering dividends) before it started investing heavily in growth and modernization. Just imagine what QSR could do now that it has the willingness to spend money to make money!
