Maximize your passive income with Wendy’s stock

After falling to 78% of its 52-week high, a price not seen since 2022, Wendy’s Co. NASDAQ: WED has become one of the best passive income strategies for retail investors today.

Favored by analysts and supported by bullish projections, this stock offers the potential upside found in consumer discretionary stocks. At the same time, Wendy’s business model, which focuses on convenience and convenience, also gives it some of the characteristics found in consumer staples titles.

Part of the low-beta group of stocks, Wendy’s low volatility gives shareholders another leg of stability. As long as the timing and size of interest rate cuts by the Federal Reserve remain a speculative gamble, investors looking to combat persistent inflation by continuing to grow their investments at above-market rates may find a home in Wendy’s actions.

Why Wendy’s range matters

Over the past five years, Wendy’s shares have struggled to break out of the roughly $18-$22 range, offering traders no more than a 22% range. The lack of big swings can give traders headaches, but this is the source of long-term investor interest.

The low volatility of this stock could make the future predictable for shareholders. Some may also choose to sell short options, both puts and calls. Essentially, this strategy aims to collect premiums on stocks like Wendy’s, which aren’t expected to move much.

While the strategy behind making income from options premiums is more complicated, Wendy’s potential for a passive income strategy doesn’t stop there. Those who like dollar-cost averaging in a stable stock like Wendy’s may find a slice of heaven.

Buying a certain amount of shares at a defined interval (biweekly or monthly) allows dividend investors to create a snowball effect in Wendy’s, as the company pays shareholders an annualized dividend yield of 5.4%. This yield addresses the persistent inflation affecting the United States and exceeds “risk-free” one-year government bond yields. In other words, passive investors could buy – and continue to buy – Wendy’s stock and expect to collect a reliable paycheck without the swings of traditional stocks.

Don’t let Wendy’s size fool you

Having a market capitalization of $3.8 billion has its advantages. Wendy’s is a direct competitor to larger, more established companies such as McDonald’s Co. NYSE: MCD, a stock that has grown into a $203 billion juggernaut. However, size doesn’t always matter. The Wendy’s brand is almost synonymous with McDonald’s, one of the only differences is the ease with which investors can see their investment compound.

It can often be easier to raise investment capital through a smaller company, as earnings per share (EPS) advances are more easily amplified, as is the case with Wendy’s financials. Analysts believe McDonald’s EPS will grow 9% this year, while Wendy’s projections push for a 12% rate.

Despite having better growth prospects, Wendy’s still trades at a 40% discount to the foodservice industry, as measured by its P/E ratio of 18.8x compared to its average valuation of 31.5x. Wendy’s is still 13% cheaper than McDonald’s 21.5x P/E multiple.

Investors who prefer McDonald’s size and global presence would see increases in both EPS and revenue. But McDonald’s dividend yields less than half that of Wendy’s at 2.5%. McDonald’s shares are trading 88% of their 52-week high, offering less upside room than Wendy’s 77%. Additionally, Wendy’s offers investors an 18% underperformance gap versus SPDR fund for selected consumer discretionary sectors NYSEARCA: XLY in the last 6 months.

Wall Street likes Wendy’s

Analyst price targets are set at a consensus of $22.6, reflecting a 22.3% upside from where Wendy’s shares are trading today. Seeing double-digit upside could just be the beginning, as one of the biggest names on Wall Street, The Goldman Sachs Group Inc. NYSE:GShe saw potential in the title.

As of March 2024, the investment bank added 21.5% to its stake in Wendy’s in the latest quarter. This boost reflects an allocation of approximately $2.3 million, just in time for the company’s quarterly earnings announcement. In the latest quarter, Wendy’s posted 18.3% growth in its EPS, making the current projection of 12% a potential understatement. Free cash flow (operating cash flow minus capital expenditures) grew 28.7% over the year, allowing for more predictable dividend payments for investors.

A final reference for investors concerns share buybacks. Management said there is still $310 million available to repurchase shares this year, about 8% of the company’s size. A buyback program of this size could imply that management believes the stock is cheap at these levels.

Before you consider Wendy’s, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Wendy’s wasn’t on the list.

While Wendy’s currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here