Massive Passive Income: 2 Stocks (Yielding up to 10%) to Make You Rich in Your Sleep!

Pizza Pizza Royalty Fund (TSX:PZA) another another super-high yielder could make you big passive income in your sleep!

| More on:

For many retirees, the 4% rule just doesn’t cut it.

While the rule allows investors to get a good balance of income and growth, one stands to leave a tonne of upfront yield on the table by following the arguably outdated rule of thumb. Consider the following two pizza royalty income funds that can allow you to more than double your passive income without having to risk your shirt.

Pizza Pizza Royalty

Up first, we have Pizza Pizza Royalty (TSX:PZA), an 8.7%-yielding income fund that collects royalties from popular Canadian pizza chains Pizza Pizza and Pizza 73. Shares of the income giant have been under pressure over the last few years, now down 46% from all-time highs reached in 2017.

Fierce competition in the pizza market and tightening budgets of indebted Canadian consumers share part of the blame for Pizza Pizza’s 52% peak-to-trough drop. And with consolidated same-store sales growth (SSSG) numbers slightly in the red (-0.1%) for the third quarter, many investors are wondering if the all-Canadian pizza giant can stay relevant in the new era of quick-serve restaurants.

There’s no question that food delivery services have curbed the appetite for pizza over the years. As the company ramps up its efforts to win back the business of Canadians, both through its marketing campaign emphasizing a delivery service that’s “done better,” and the (re)launch of intriguing menu items like the cauliflower crust and other plant-based meat alternative toppings, I see a scenario where comps could make a sustainable move back into the green.

The company has revamped its website and will look to leverage innovative new technologies to (like AI) to make permanent improvements that’ll eventually show up in the bottom line.

For now, Pizza Pizza is a heavily out-of-favour QSR player that’s absurdly cheap, offering investors a chance to lock in a handsome 8.7% yield. While earnings may pale in comparison to the massive size of the distribution, I don’t see a scenario where Pizza Pizza drastically reduces its distribution payout given the tools that management has to send comps (and EPS numbers) higher amid challenging economic conditions.

Boston Pizza Royalties

Sporting a 10.1%-yielding distribution, we have Boston Pizza Royalties (TSX:BPF.UN), another pizza player that’s succumb to a similar set of headwinds plaguing select Canadian restaurants. The company recently shuttered six restaurants and added five new ones with the hopes of bolstering per-store sales amid challenging economic conditions.

Fellow Fool David Da Costa believes that Boston Pizza is a “top buy,” despite citing that a dividend cut is a possibility if the company can’t get its SSSG growth numbers back in the right direction. A distribution that yields 10.1% is a huge commitment, and Da Costa thinks Boston Pizza could reduce its distribution modestly to yield 9.2%.

“A 9.2% dividend that has a payout ratio below 100% seems like a pretty attractive deal to me and shows the market may be overreacting with Bostom Pizza, moving it well into oversold territory.” said Da Costa. “There are still some other risks to consider, though, such as a lack of SSSG potentially causing some restaurants to close, which would impact overall sales numbers.”

If SSSG numbers deteriorate further, I think there’s no chance that Boston Pizza will trim its distribution ever so slightly. If it does cut, it’s going to be a sizeable cut, because, like it or not, shaving 10% off of a 10% yield isn’t going to provide enough financial wiggle room, nor will it impress income-oriented investors who’ll likely throw in the towel on such a move.

The damage to the reputation of even the slightest of distribution cuts will be substantial, so it only makes sense to slash the distribution in half, rather than proceed with potentially many cuts, as some energy firms did in the years following the 2014 implosion in oil prices.

In any case, I see Boston Pizza doing its best to retain its distribution as is over the intermediate term, while looking to shutter less-profitable locations to make room for new ones in more lucrative markets. If the opening and closing of restaurants combined with SSSG-driving initiatives fail, I wouldn’t be surprised to see Boston Pizza’s distribution slashed in half to 5%.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of PIZZA PIZZA ROYALTY CORP.

More on Dividend Stocks

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »