Better Buy: McDonald's or Yum! Brands After Selling Pizza Hut for $2.7 Billion?

Yum! Brands (NYSE: YUM) just announced that it plans to sell its Pizza Hut franchise to LongRange Capital for $2.7 billion. Investors have long known Yum! Brands as the umbrella that includes KFC, Taco Bell, and Pizza Hut. Pizza Hut's performance has generally lagged that of the other franchises, and this was likely a factor in the decision to sell it.

One has to assume unloading a poorer-performing franchise should bode well for Yum! Brands shareholders. Still, one also might wonder how it compares to McDonald's (NYSE: MCD), which has built one of the more successful fast-food enterprises in existence. Let's take a closer look at both to see how the consumer discretionary stocks compare.

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Putting Yum! Brands into perspective

At first glance, the Pizza Hut sale appears to be a positive for Yum! Brands. Its same-store sales declined in 2025 and were flat in the first quarter of 2026. This may seem disappointing considering that Pizza Hut is the second-largest of its four franchises, significantly lagging behind KFC but ahead of Taco Bell and Habit Burger.

Still, one might ask whether investors should be concerned by this move. Yum! Brands has thrived on being an umbrella for several well-known franchises. Even though it was not performing as well as other franchises in the company, Pizza Hut's longtime presence has made it one of the more respected pizza brands.

Moreover, Yum! Brands has appeared more prosperous recently despite Pizza Hut's performance. In Q1, it earned $2.06 billion in revenue, a 15% yearly increase. That was ahead of the 9% annual revenue surge in 2025. Also, Q1 net income rose 71% to $432 million as the company's tax burden fell.

Interestingly, in 2025, the $1.56 billion it earned in net income rose 5% yearly on a rise in its tax burden. That has helped support its dividend of $3.00 per share, a payout that has increased for nine straight years. Also, the 1.9% dividend yield is significantly above the S&P 500 average of 1.1%.

Nonetheless, Yum! stock has risen by around 10% over the past year. Amid that increase, it maintained a P/E ratio of around 24, just below its average of 26 over the last five years. If you believe spinning off Pizza Hut is a wise move, such numbers might persuade you to take a chance on Yum! Brands stock.

Why investors might consider McDonald's

When comparing Yum! Brands to McDonald's, investors have to realize that McDonald's is a fundamentally different business. For one, despite past ownership of Chipotle Mexican Grill and a recent attempt to start a beverage-based franchise, McDonald's is about one franchise.

Moreover, its business model has one surprising difference. Around 95% of McDonald's restaurants are franchises. McDonald's also owns the buildings, bringing added rental revenue from the franchises. Although that does not make McDonald's a real estate investment trust (REIT), it gives the company a more stable revenue base that depends less directly on restaurant sales.

Still, the company has faced criticism for rising prices. Big Mac meals as high as $18 left customers questioning whether McDonald's was still a value option. Also, its "under $3 deals" were not always a hit a few years ago.

However, what might be bad for customers has appeared to benefit investors. In the first quarter of 2026, its $6.5 billion in revenue rose 9% yearly, well above the 4% increase in 2025. Rising expenses, particularly taxes, meant its $2.0 billion in quarterly income climbed by just 6% annually, improving over the 4% income growth in 2025.

With regard to dividends, it pays shareholders $7.44 per share annually, or a yield of 2.7%. Investors should note that the dividend has risen for 49 straight years, one year short of the 50 years required for Dividend King status.

Despite that growth, the stock has struggled in recent months and is down slightly over the last year. Nonetheless, the 23 P/E ratio means its valuation is slightly below the five-year average of 27, a factor that could attract more investors to McDonald's stock.

Yum! Brands or McDonald's?

Despite the possible improvements for Yum! Brands that will come from the sale of Pizza Hut, investors are likely better off buying McDonald's stock.

Indeed, both are income-generating stocks backed by businesses with decades of history. However, McDonald's emphasis on a single franchise arguably gives it more focus. Additionally, the revenue from real estate ownership acts as a stabilizer that shields the company from economic cycles.

Furthermore, investors can buy McDonald's stock at a lower P/E ratio and earn a higher dividend yield. Hence, even if conditions improve for Yum! Brands stock, investors are likely to earn higher returns from McDonald's stock.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Yum! Brands and recommends the following options: long January 2028 $320 calls on McDonald's, short January 2028 $340 calls on McDonald's, and short June 2026 $36 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.