The Tax-Free Savings Account (TFSA) is a natural home for Canadians with short-term or long-term savings goals. You can hold shares of publicly listed companies within the account to take advantage of tax-free benefits and double your money at the same time.
Dividend investing is the preferred strategy of many TFSA users. If you can earn generate the highest monthly passive income the better. One of the dividend machines on the TSX is Boston Pizza (TSX: BPF.UN). This $295.7 million royalty income fund offers a 10.21% dividend.
Earning potentials
You can use your new 2020 TFSA annual contribution limit of $6,000 to purchase the same worth of Boston Pizza shares at the beginning of the year. The amount can deliver $612.60 in annual income.
Assuming you have an unused contribution of $33.500 and buy the royalty stock to invest within your TFSA, the annual windfall is $3,420.35, or a monthly income of $285.03. Boston Pizza is a cash cow that is suited for income investors, particularly TFSA investors. But don’t expect much on the price appreciation.
Company overview
Boston Pizza is the number one casual dining brand in Canada. Since 1994, it has been known as one of the 50 Best Managed Companies in the country.
This Fund is a limited purpose open-ended trust and earns revenue based on the franchise system sales of the 395 Boston Pizza restaurants.
Last year alone, system-wide gross sales reached $1.1 billion. Since 2002, the average annual same-store sales growth (SSSG) is 2.7%. Also, the average annualized compound return is 12.2%, including the reinvestment of distributions.
In terms of patron count, Boston Pizza serves over 50 million customers. These paying guests delight in more than 100 unique menu items such as gourmet pizzas, pasta, burgers, and the popular BP wings.
Restaurant development is on a continuing basis. Boston Pizza opened five new restaurants in 2019 and completed 11 renovations during the quarter ended September 30, 2019. Investors, however, should understand that the business is seasonal in nature.
Franchise sales are usually high in the first and fourth quarters and taper off during the second and third quarters. The payout ratio also rises when franchise sales are high.
Business outlook
Boston Pizza has started to introduce exciting promotions and new menu items in stores heading into 2020. The company kicked off the fourth quarter of 2019 with the Hockey Night in Canada partnership to coincide with the NHL Hockey season.
The launching of the partnership launched increases the TV, digital and social media activities, alongside in-restaurant promotions at participating Boston Pizza Restaurants across Canada.
Its adoption of direct and third-party delivery channels saw an increase in take-out and delivery sales online. The strategy was the perfect solution to offset the decline in in-store traffic.
Boston Pizza is confident that the marketing programs for this winter are going to succeed. Over the long run, management is optimistic about the expansion opportunities for the restaurant.
Market-beating returns
Boston Pizza is an alternative option for TFSA investors seeking market-beating returns and extraordinary high monthly income. The 10.21% yield is more than enough to deliver the desired results.
