When the economy struggles, consumers are always quick to tighten their belts, usually in fairly predictable ways. Sales at luxury brands are among the first to see declines, as it’s hard to justify buying a fancy piece of jewelry at Tiffany and Co. when the thought of losing your job looms over your head.
But people still want to treat themselves, even during tough economic times. So they tend to look at things that allow them to escape their worries and concerns for a little while at a reasonable cost. An obvious choice is going out to eat, especially if the restaurant is reasonably priced. For $50, a couple can go out, have a couple of drinks and a nice meal.
Here are three restaurant stocks with high current yields that should be steady performers, even during a weaker economy.
1. Boston Pizza Income Fund
First up is Boston Pizza Income Fund, (TSX: BPF-UN), which was one of the fastest growing restaurant chains in Canada during the first decade of the 2000s. BPs, as it’s commonly called, has come a long way since its pizza roots, serving a varied menu filled with many contemporary favorites like hamburgers, pasta, and gourmet salads.
The company is well established across the country, and is a household name. Boston Pizza boasts a 5.75% yield, along with a history of a growing dividend, as it has grown the monthly distribution from 8.4 cents per month in 2011 to 10.2 cents per month currently. While there is concern the company doesn’t have a whole lot of growth potential left, the strength of the brand and its great locations should continue to be positives.
2. Pizza Pizza Royalty Corp.
What Canadian doesn’t like pizza? Pizza Pizza (TSX: PZA) is the most popular pizza chain in Ontario, Canada’s most populous province. Like Boston Pizza, it has leveraged its success in pizza into other menu items, like wings and sandwiches. And like Boston Pizza, its locations are mostly operated by franchisees, which minimizes both the risk and the amount of capital needed.
The company currently yields 5.95%, and it has raised its monthly dividend four times since it converted from an income trust to a corporation at the end of 2011. It is also addressing its Western Canadian weakness by expanding Pizza 73, its chain in the west. Pizza 73 currently only has 89 locations, so there’s room for growth going forward.
3. A&W Revenue Royalties Income Fund
And finally, we have a fast food chain that aspires to make a higher quality hamburger than McDonald’s, A&W Revenue Royalties Income Fund (TSX: AW-UN). Unlike some of the other popular fast food chains in Canada, A&W has been innovative in its store setup, launching a new express concept that has a smaller footprint and serves a more limited menu. It’s a great idea to increase franchisee count, and it seems to be working, as the company added 38 new restaurants to its 700 existing locations in 2013.
A&W has a current yield of 6.5%, and has recently sported a payout ratio of over 100%, an obvious red flag. However, the company has grown same-store sales over the last two quarters, and that combined with the growth in the number of locations should mean the dividend is sustainable.
