Shelter in troubled times

The attraction of defensive sectors

The outlook for investors has probably never been more uncertain. North American equity markets are hitting new all-time highs even as the Iran conflict rumbles on, with the Strait of Hormuz still effectively closed, keeping oil near US$100 a barrel.

Governments continue to run massive deficits, yet yields in bond markets are little changed from a year ago. The inflationary impact of higher oil and gas prices seems to have taken any further interest rate cuts off the table. In these circumstances, it’s understandable if investors retreat to the perceived safety of cash, especially as short-term rates are 3.75% in the U.S. and U.K., and 2.25% in Canada and the Euro area.

Alternatively, many analysts and commentators are continuing to recommend maintaining positions in the U.S. equity market, even though it has become even more concentrated. The large capitalization Magnificent 7 technology stocks (Alphabet, Amazon, Apple, Meta, Nvidia, Microsoft, and Tesla) now account for over 30% of the market capitalization of the S&P 500.

The reason for recommending keeping the faith is the exceptionally strong earnings that the Artificial Intelligence (AI) boom is delivering to the so-called hyperscalers, which are spending close to $1 trillion this year on building out data centres to power the AI revolution. This also includes the providers of the “picks and shovels” for this boom, the chip providers led by Nvidia and also the Asian tech giants, TSMC and Samsung.

In contrast, the remaining 493 companies in the S&P 500 are barely seeing any growth in earnings. A stagnant housing market due to stubbornly elevated mortgage rates (above 6%) has put a damper on consumer spending.

Meanwhile, despite accelerated depreciation allowances for new investment in President Trump’s One Big Beautiful Bill (OBBB) last year, non-AI related companies have been cautious about making new spending commitments. The rising price of gasoline has led pinched consumer spending, leaving less to be spent on other goods.

The potential negative effect of these elevated prices on the Republican prospects in November’s mid-term elections in the U.S. is one of the reasons observers expect President Trump to come to some sort of deal with Iran in the near future.

Shelter from the “cost-of-living crisis”

Given the confusing mix of factors, investors should be looking for companies and sectors that offer protection from the “cost-of-living crisis,” as it has become known.

Defensive sectors, such as utilities, pipelines, grocery-anchored retailers, and financials have held up well over the last year. For example, the iShares S&P/TSX Capped Utilities Index ETF is up 19%, the iShares S&P/TSX Capped REIT Index ETF is up 13%, and the iShares S&P/TSX Financials Index ETF is up 40% over the last 12 months before taking dividends into account. The attraction of tax-effective and rising income in the present uncertain environment should not be underestimated as an additional attraction of such defensive stocks.

One area that also is worth looking at is quick-service restaurants, whose value-oriented offerings become more attractive in financially difficult times. While there will always be concerns over the health consequences of relying too much on convenience foods, most restaurant chains have been making a concerted effort to make their offerings healthier and less environmentally damaging.

While mid-range restaurant chains have been seeing lower visitor numbers, fast food operators have seen their client base hold up well and even increase as customers trade down. This tendency to focus on small affordable pleasures has been dubbed “the lipstick effect,” as shoppers buy themselves a small treat to compensate for not being able to buy something more expensive like a new outfit.

To take advantage of this trend check out a leading operator of quick service restaurants in North America.

RBI cooking up growth

Restaurant Brands International Inc. (TSX: QSR) holds such iconic brands as Burger King, Popeye’s, and Tim Hortons in its portfolio. It is the fifth-largest operator of fast-food restaurants in the world after Subway, McDonalds, Starbucks, and Yum Brands (KFC and Pizza Hut). It has over 33,000 locations in more than 120 countries.

RBI trades on the TSX, where it is one of the 100 largest companies by market capitalization ($38 billion). Volumes average over 750,000 shares daily. The shares have risen 16% over the last year, but only 33% over the last five years, reflecting the operational issues with Burger King.

For the year to Dec. 31, 2025, RBI reported 5.3% system-wide sales growth to $46.8 billion. Net revenues were up 12.2%, to $9.4 billion, while operating income was down 9%, at $2.2 billion, and net income fell 17%, to $1.2 billion ($2.63 per share) reflecting the costs of the investment program. For the first quarter ended March 31, 2026, system-wide sales grew 6.2% year over year, to $11.5 billion. Total revenue grew 7.4%, to $2.26 billion.

RBI pays a quarterly dividend of $0.65 a share, equivalent to a 2.5% yield, which was increased by $0.03 (4.8%) in February this year, the sixth year it has been increased. It’s eligible for the dividend tax credit in non-registered accounts for Canadian investors. RBI plans to repurchase up to $500 million of shares this year.

Price pressures from higher food prices, and rising utility and property expenses are squeezing margins, and competition from other fast-food chains reducing prices may affect sales too, but the company's scale and purchasing power offer some protection from the worst effects. The willingness of its franchisees to contribute to higher advertising and remodeling expenses is a vote of confidence in the direction of the company.

RBI would be suitable for investors willing to accept a reasonable but moderate yield in exchange for a defensive investment that has coped well with rising price pressures and executed a major improvement in its offering and restaurants.

Gavin Graham is a veteran financial analyst, money manager, formerly Chief Investment Officer of BMO Financial, and a specialist in international investing, with over 35 years’ experience in global investment management. He is currently Chief Investment Officer of Calgary-based Spire Wealth Management.

Notes and Disclaimer

Content copyright © 2026 by Gavin Graham. Excerpted from an article that first appeared in The Internet Wealth Builder newsletter. Used with permission.

The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.

The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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