The More Defensive Way to Invest in Restaurant Stocks

In the year ahead, restaurants are focused on restoring traffic and preserving profit margins after a rocky 2025. With customers seeking value and pushing back on price increases, franchise quick-service restaurants (QSRs) offer a lower-risk way to invest in the industry.

How franchise economics reduce risk

Restaurant stocks that deploy the franchise model earn royalties on sales rather than running their own stores. Franchisees cover the cost of new locations and handle labor and food costs.

As a result, the model is highly scalable, with low capital requirements and operational risk. The financials are straightforward, with high-margin, recurring revenue driving predictable free cash flow that can be used for share repurchases and dividends.

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Where royalties reign

McDonald's (NYSE: MCD) is the natural starting point for discussing franchises. Global same-store sales have outpaced U.S. results over the past two quarters. With around 60% of revenue generated overseas, McDonald's international presence is helping offset ongoing weakness in the U.S. with lower-income households.

Thanks to its size and capital-light model, the company has returned nearly $8 billion to shareholders annually through buybacks and dividends over the past few years.

Yum! Brands (NYSE: YUM) also offers global reach, but through three distinct brands: Taco Bell, KFC, and Pizza Hut. Taco Bell continues to do the heavy lifting, delivering 7% SSS growth in the most recent quarter and strong restaurant-level margins of 23.9% in the U.S.

After a new CEO was named in June, the first order of business was putting longtime laggard Pizza Hut under strategic review. That's worth keeping an eye on, but Pizza Hut only accounts for roughly 12% of total revenue.

Like Yum, Restaurant Brands International (NYSE: QSR) operates a small, diversified portfolio of brands. Tim Hortons in Canada is a steady performer providing dependable cash flow, while Burger King is beginning to show signs of life, reporting SSS growth of 3% in the third quarter.

The stock trades around 17 times forward earnings, compared with the mid-20s for McDonald's and Yum. Combined with a dividend yield near 3.7%, the valuation makes QSR worth a look for value investors.

Wingstop (NASDAQ: WING) runs a simple model designed around a limited menu and small store footprint. By focusing on chicken wings, the company can keep operations streamlined and drive digital sales, which now make up more than 70% of total sales.

In 2025, domestic same-store sales growth turned negative in the second quarter and dropped 5.6% in Q3, due in part to lapping the impressive 21% growth last year and weaker traffic in some key markets. Despite the current headwinds, the growth story remains intact. With fewer than 3,000 locations today and a long-term target of 10,000 global stores, Wingstop has a long way to go in an otherwise mature category.

The road ahead

Last year showed that restaurants can't just raise prices forever. Those who learned that lesson are now working to stabilize guest visits, while the others seek to take market share by focusing on value.

For investors seeking blue chip exposure, McDonald's and Yum! Brands continue to offer stability and dividend yields of around 2%. Meanwhile, Wingstop is more appealing for investors willing to pay a premium for growth, and RBI stands out for its higher yield and reasonable valuation.

Bryan White has no position in any of the stocks mentioned. The Motley Fool recommends Restaurant Brands International and Wingstop. The Motley Fool has a disclosure policy.