Investors: Lock in Succulent Dividends From These 3 Restaurant Stocks

Dividends don’t get much better than the ones offered by A and W Revenue Royalties Income Fund (TSX:AW.UN), Boston Pizza Royalties Income Fund (TSX:BPF.UN), and Pizza Pizza Royalty Corp. (TSX:PZA).

| More on:

It seems like everyone has an opinion about the restaurant business.

Most people think about the operating side with many dreaming of one day opening their own bistro. After all, most of us can make at least one delicious dish. Have you tried my meatballs? They’re to die for.

But operating a restaurant is a tough business. Cooking is the easy part. An owner has to make sure the staff all get along (and aren’t stealing the place blind), keep unruly customers happy, and ensure enough people show up. Oh, and there are hundreds of competitors in most places.

No wonder so many restaurants go under.

Passive investors have it much better. We can easily invest in some of Canada’s top franchises–restaurants with hundreds of locations from coast to coast. These are royalty trusts, which means investors are paid directly from royalties from franchisees. These fees come right off the top of every sale.

Since there aren’t many other associated expenses, investors can count on these stocks to pay handsome dividends. Let’s take a closer look at three of Canada’s top restaurant stocks.

Pizza Pizza

I own Pizza Pizza Royalty Corp. (TSX:PZA), the parent company of close to 700 Pizza Pizza and Pizza 73 locations across Canada.

There’s a lot to like about the company. First of all, it serves pizza, which is probably the perfect food. Pizza is also easily ordered via the internet or a smartphone app–a market Pizza Pizza has done a nice job tapping into. This trend will continue, much to the chagrin of folks who answer the phones.

Same-store sales have been decent thus far in 2016, increasing 1.9% despite weakness in Alberta. Total sales have increased 2.5% after the company opened 10 new locations.

This slow and steady top-line growth has translated into investors getting decent dividend increases. Since 2011, when the company was forced to convert from an income trust to a corporation, it has hiked the payout by 22.4%–not bad for a company that currently pays a 5.2% dividend.

Boston Pizza

Pizza Pizza is almost strictly a pizza joint. Although Boston Pizza Royalties Income Fund (TSX:BPF.UN) has pizza in its name, its menu is much more diverse.

Boston Pizza is Canada’s largest fast-casual restaurant chain. Its +370 locations recently surpassed sales of $1 billion and have grown same-store sales by 0.7% thus far in 2016. That’s a little disappointing, but total sales growth of 2.6% is a much better result. Distributable cash earned per unit also increased, rising by nearly 4%.

The company has one of the best dividends out there; it currently pays $0.115 per share each month–good enough for a 6.2% yield. And, like Pizza Pizza, it has hiked its payout regularly since 2011, increasing the distribution five times.

A&W

A and W Revenue Royalties Income Fund (TSX:AW.UN) has been one of the best-performing stocks on the TSX over the last five years. Including reinvested dividends, a $10,000 investment in the company back in 2011 would be worth $23.866 today–an annual return of 19%.

The company has done a nice job marketing higher-quality ingredients to customers, which is causing some impressive same-store sales growth. The top line shot up 6.3% in 2014, 7.6% in 2015, and 5.4% thus far in 2016. A&W is now Canada’s second-largest burger chain.

The only problem with all this growth is that investors are happier to accept a lower dividend yield. A&W shares currently yield 4.4%. That’s a decent payout, but it doesn’t really compare to the dividends offered by Boston Pizza and Pizza Pizza.

The bottom line

There’s a lot to like about the restaurant business, especially royalty trusts. These companies have great brands, fantastic locations, and regular customers. They also pay succulent dividends and offer just enough growth to ensure income investors get steady raises. It really doesn’t get much better than that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns shares of PIZZA PIZZA ROYALTY CORP.

More on Dividend Stocks

Growth from coins
Dividend Stocks

3 Canadian Dividend Stocks That Are Dirt Cheap Right Now

These three Canadian dividend stocks look attractive with their above 6% yields and cheaper valuations.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

3 TSX Stocks That Could Make You a Millionaire

These three TSX stocks each have outstanding potential while trading undervalued today, creating significant opportunities for investors.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks You Haven’t Bought Yet, But Should

I get it, these dividend stocks aren't doing so hot these days. But investors should buy now and think long…

Read more »

telehealth stocks
Dividend Stocks

Retirees: 2 Dividend Stocks (With +6% Yields) for Worry-Free Passive Income

These TSX stocks offer attractive yields and have solid dividend payment histories, implying retirees can easily rely on them.

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Canadian Dividend Stocks to Buy Amid a Market Correction for Years of Passive Income

Here are two of the best Canadian dividend stocks long-term investors can buy right now to earn stable passive income…

Read more »

Caution, careful
Dividend Stocks

Top Investor-Favourite TSX Stocks to Avoid This Year

Here are two TSX stocks that could continue to underperform.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

New Investors: How to Safely Make $150 in Monthly Passive Income

In this current market environment, we’re all craving safety and security. New investors looking for stable and growing passive income…

Read more »

A golden egg in a nest
Dividend Stocks

3 Stocks to Turn Five-Digit Savings Into a Six-Digit Nest Egg

If you have enough time, you can achieve decent growth goals with safe and modest growth stocks in your portfolio.

Read more »