Canada has a little over 82,000 restaurants. That’s one restaurant for over 463 people in the country, though the distribution will differ significantly between urban and rural areas.
The best restaurant stocks in Canada can prove to be relatively healthy long-term investments, and it’s an asset class you can consider investing in.
Best Restaurant Stocks In Canada
Canada has a healthy collection of restaurant stocks, including many that are not exactly restaurant owners but are still integrated into the industry.
1. Restaurant Brands International Stock (TSX)
- Ticker: QSR.TO
- Niche: Fast food chains (3)
- Forward Dividend Yield: 3.65%
- Dividend Payout Ratio: 81.68%
- Dividend Yield (12-Month Trailing): 2.28%
- Upcoming Dividend Date: Jan 04, 2024
- Market Cap: $42.23 Billion
- Forward P/E Ratio: 20.38
Restaurant Brands International came into being with a merger that was initially facilitated by Warren Buffett between the US-based Burger King and Canadian Tim Hortons. Later, Popeyes was also introduced in the mix.
While the two founding fast-food chains have long histories in their respective countries, the company itself is new and was only formed in December 2014. The combined company has a massive presence (over 100 countries).
The stock showed decent growth till 2019 (156%) appreciation, but it has mostly been relatively static since then.
Up until 2022, Popeyes was the best earner and grower out of the three, and Tim Hortons was weighing the company down.
The stock is a smart buy for its dividends, as it’s an aristocrat with a good yield.
2. Premium Brands Holdings Stock (TSX)
- Ticker: PBH.TO
- Niche: Specialty food manufacturing
- Forward Dividend Yield: 2.80%
- Dividend Payout Ratio: 84.30%
- Dividend Yield (12-Month Trailing): 3.28%
- Upcoming Dividend Date: Jan 15, 2024
- Market Cap: $4.09 Billion
- Forward P/E Ratio: 16.77
Premium Brands Holdings (as the name suggests) hold a decent number of brands related to the restaurant industry.
The two typical businesses its brands engage in are specialty food manufacturing and distribution, subdivided into six different platforms.
Distribution is one, and the other five are Seafood, Bakery, Culinary, Sandwich, and Protein, which is the most extensive one and has the largest collection of brands.
Together, the company caters to over 22,000 customers, which makes up a significant portion of the Canadian restaurant market and part of the US market.
There are about 108 facilities under Premium Brands banner.
It’s also a dividend aristocrat though its yield is usually modest.
3. MTY Food Group Stock (TSX)
- Ticker: MTY.TO
- Niche: Franchiser/Restaurant Chain Operator
- Forward Dividend Yield: 1.42%
- Dividend Payout Ratio: 20.57%
- Dividend Yield (12-Month Trailing): 1.87%
- Upcoming Dividend Date: Nov 15, 2023
- Market Cap: $1.26 Billion
- Forward P/E Ratio: 12.75
MTY Food Group started with a single restaurant in Montreal in 1979. Now, it has evolved as one of the largest franchisers in Canada and has an extensive international presence (35 countries).
The group has about 6,900 locations under the banner, most in the US. The extensive portfolio covers about 80 brands divided into nine classes (like Indian/Asian, American, Frozen Treats, and Coffee).
The top ten brands bring in most of the money into the business (about three-fourths of it), and among different types of food businesses, the Frozen Treats and Smoothies are the revenue winner.
4. A and W Revenue Royalties Income Fund Stock (TSX)
- Ticker: AW-UN.TO
- Niche: Burger Quick Service Restaurant
- Forward Dividend Yield: 4.98%
- Dividend Payout Ratio: 85.14%
- Dividend Yield (12-Month Trailing): 6.24%
- Upcoming Dividend Date: Nov 30, 2023
- Market Cap: $444.72 Million
This company claims to be the second-largest Burger Quick Service Restaurant (QSR) company in the country.
The fund/business group is made up of three different chains: A&W Root Beer, The Burger Family, and Chubby Chicken.
Together, it has resulted in a portfolio of over a thousand locations. And though it has a presence almost everywhere, the locations in four provinces (in order), i.e., Ontario, Alberta, BC, and Quebec, make up over 84% of the portfolio.
The portfolio includes more than just restaurants and includes over 160 convenience locations.
The company also pays decent dividends and usually has a pretty healthy yield.
5. Keg Royalties Income Fund Stock (TSX)
- Ticker: KEG-UN.TO
- Niche: Steakhouses and Bars
- Forward Dividend Yield: 7.23%
- Dividend Yield (12-Month Trailing): 8.55%
- Upcoming Dividend Date: Nov 30, 2023
- Market Cap: $222.65 Million
- Forward P/E Ratio: 11.52
This income fund is tied to the famous steakhouse and bar chain of the same name (The Keg), which started out in 1971 with a single location and now has over 100 locations, mainly in Canada and the US.
One main difference between Keg and other restaurant stocks on this list is its association with a single name.
Companies/businesses made up of multiple chains have options to fall back on. But if one restaurant chain starts losing business, it can be pretty devastating for the stock.
As an income fund, the stock gets more attraction for its dividends and a robust yield rather than its capital appreciation potential, which peaked in 2017. However, the stock has shown resilience during economically harsh times.
6. SIR Royalty Income Fund Stock (TSX)
- Ticker: SRV-UN.TO
- Niche: Restaurant chains
- Forward Dividend Yield: 7.77%
- Dividend Payout Ratio: 95.06%
- Dividend Yield (12-Month Trailing): 7.02%
- Upcoming Dividend Date: Nov 30, 2023
- Market Cap: $136.52 Million
- Forward P/E Ratio: 14.05
Another income fund that is beloved for its dividend potential is SIR Royalty Income Fund.
It represents a stake in various restaurant chains, including Jack Astor’s Bar and Grill and the Loose Moose, which collectively have 38 locations.
The fund gets about 6% of the revenue from the restaurant, part of which is distributed to the shareholders as dividends.
This usually results in quite a healthy yield. However, the income fund also stops paying when the restaurants are not making enough money. Between 2020 and 2021, the fund didn’t pay out for 16 consecutive months.
And even when it restarts paying dividends, the amount was lower than what it was before the pandemic.
So it’s a good dividend stock, but only as long as the underlying business is healthy because, unlike other dividend payers that try hard to maintain their payouts even during economically harsh times (to keep investors), the fund will not hesitate to suspend its payouts.
7. Recipe Unlimited Stock (TSX) – (NO LONGER AVAILABLE)
Note that RECP.TO has gone private and its shares are no longer available to purchase.
The company claims to be the largest full-service restaurant company in the country.
But even if that claim is dubious, it is one of the oldest companies on this list, as it started out in 1883 (though as a completely different business).
It has 24 different restaurant brands under its banner (owned, franchises, and joint ventures), with 1,300 restaurants.
Most of them are local, spread out to over 300 communities, while 61 are international. The franchise business contributes to a more significant portion of the revenue.
Best U.S Restaurant Stocks
8. McDonald’s Stock (NYSE)
- Ticker: MCD
- Niche: Fast food chain
- Forward Dividend Yield: 2.12%
- Dividend Payout Ratio: 66.87%
- Dividend Yield (12-Month Trailing): 2.16%
- Upcoming Dividend Date: Dec 15, 2023
- Market Cap: $204.94 Billion
- Forward P/E Ratio: 24.78
As the world’s largest fast-food restaurant chain, McDonald’s is almost a no-brainer choice. The first McDonald’s opened in 1955, and in less than a century, it has covered a significant portion of the globe.
There are about 36,000 McDonald’s restaurants in over a hundred countries. It’s easily one of the most globally recognizable fast-food names in the world.
However, it’s the unique business model (land ownership) that contributes to the financial strength of this group.
The stock has been a steady and robust grower for the last two decades. Though it also pays dividends, its capital appreciation potential is a better reason to buy this than the dividends.
9. Yum! Brands Stock (NYSE)
- Ticker: YUM
- Niche: Fast food chains
- Forward Dividend Yield: 1.93%
- Dividend Payout Ratio: 42.89%
- Dividend Yield (12-Month Trailing): 0.47%
- Upcoming Dividend Date: Dec 08, 2023
- Market Cap: $36.02 Billion
- Forward P/E Ratio: 22.08
Yum combines four iconic fast-food chains: KFC, Pizza Hut, Taco Bell, and The Habit (Burger Grill). Collectively, the chains have 52,000 locations in over 150 countries, though no individual brand exceeds the number of McDonald’s locations.
Even though not many people know about Yum! Brands, the underlying names are well-known around the globe. But more importantly, they have slightly different target markets, which gives them a better reach.
The stock has grown at a steady yet powerful pace over the last two decades, and its ten-year CAGR of 12.4% (Feb 2012 to Feb 2022) makes it one of the most potent defensive growth stocks.
10. Domino’s Pizza Stock (NYSE)
- Ticker: DPZ
- Niche: Pizza joints
- Forward Dividend Yield: 1.11%
- Dividend Payout Ratio: 31.88%
- Dividend Yield (12-Month Trailing): 1.28%
- Upcoming Dividend Date: Dec 29, 2023
- Market Cap: $12.92 Billion
- Forward P/E Ratio: 23.5
Closing the list is the largest pizza chain in the world. With about 18,300 locations in 90 countries, it’s just a smidge ahead of Pizza Hut.
And even though it has the same single-brand problem but it’s also is its competitive edge.
Domino’s Pizza stock has been a significantly more powerful grower, at least in the last decade compared to the other two.
And if you can continue this pace for the next few decades, it is one restaurant stock that should be in your portfolio.
Investing In Restaurant Stocks in Canada – What Should You Know?
One thing that you need to understand is investing in a restaurant and investing in restaurant stocks are two completely different things.
Many of us have friends or family members that started a restaurant business, and it couldn’t take off.
That’s because starting a restaurant business without proper research, preparations, skills, and most importantly, luck, especially in today’s competitive market, is quite tricky without ample cash flow.
However, restaurant stocks are a completely different breed of assets when it comes to investment.
Most of these stocks represent chains made up of tens, if not hundreds or thousands of restaurants and food establishments.
They offer significantly more stability and have the resources to maximize the potential of their well-known brands.
Restaurant Stocks and COVID
COVID has been an eye-opening case study for restaurant stocks and the restaurant industry as a whole.
But before you let the COVID’s impact on restaurant stocks prevent you from steering clear of this potentially lucrative asset class, there are a few things you need to know.
- The pandemic, even though its impacts will take years if not decades to thoroughly dilute away, was an exception and not the rule.
- The restaurant business model, especially on-site dining, was naturally susceptible to COVID’s impact on footfall and close-proximity sitting. It didn’t reveal an actual flaw in the business model.
- The pandemic helped the restaurant industry evolve in unprecedented ways. It showed that with the right approach to deliveries and takeaways, the restaurant business could thrive even when there is virtually no footfall.
- Many restaurants reassessed their priorities regarding premises and ambiance (major cost drivers) and may become more financially viable over time by shifting their priorities.
Restaurant stocks, especially the best restaurant stocks in Canada, are still worth buying.
What Restaurants Should I Invest In?
If you are looking for dividends and capital stability – Restaurant Brand Internationals.
If capital growth is your goal – A and W Revenue Royalties Income Fund Stock is an excellent option to consider.
And if you are interested in US restaurants, McDonald’s and Yum! Brands should be on your radar. However, Domino’s Pizza’s last decades’ growth outstrips the two by a significant margin.
How To Buy Restaurant Stocks In Canada
The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
To learn more, check out my full breakdown of the best trading platforms in Canada here.
The restaurant industry is evolving. Thanks to online food ordering companies like Uber Eats, more and more restaurants have grown their geographic reach, but it has also resulted in more competition, especially from ghost kitchens.
However, some names, like QSR in Canada and the three US stocks on this list, are capable of growing regardless of the industry dynamics.
If you are looking for a more conservative set of securities than restaurants, these defensive stocks might be worth a look.