This Severely Undervalued 8.6% Yielder Is Poised to Soar!

Pizza Pizza Royalty Corp. (TSX:PZA) is a severely undervalued royalty player that could be a top performer in the 2020s.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With shares now down 45% from 2017 all-time highs, Pizza Pizza Royalty (TSX:PZA) looks like an intriguing contrarian investment to give yourself a big raise without risking your shirt on a difficult-to-understand business in dire financial shape.

Unlike many other stocks, trusts, or funds that have fallen into “accidentally high yielder” territory, Pizza Pizza’s royalty stream continues to look delicious (a mouthwatering 8.6% yield) amid competitive pressures that have plagued the entire quick-serve restaurant (QSR) space. With a sluggish Canadian economy acting as a drag on sales, the perfect storm of exogenous issues has indeed hit the Canadian pizza king, which I see as having brands that are strong enough to fuel a significant rebound as headwinds gradually fade.

The appetite for pizza hasn’t suddenly faded away, nor is Pizza Pizza’s management team asleep at the wheel. Pizza Pizza has embraced two powerful trends that I believe could give same-store sales growth (SSSG) a jolt in the new year.

Pizza Pizza’s cauliflower-based crust is back by popular demand and will benefit from the consumer trend that’s seen consumers gravitate towards “healthier” food alternatives. Moreover, the Canadian pizza powerhouse has also jumped on the plant-based meat substitute bandwagon with the addition of a variety of fake meat toppings.

While the “meatless meat” hype has died down in recent months (has everyone gotten sick of Beyond Meat burgers already?), I think there’s still ample opportunity to be had from a vegetarian market that has a newly acquired craving for the taste of (fake) meat. Gone are the days where the only option for vegetarians are cheese and veggie pizzas!

Given that Pizza Pizza is a royalty play (all cash goes towards financing the massive distribution), the company doesn’t nearly have as much capital to reinvest, putting the name at a sizeable disadvantage to its peers in the pizza space. Despite this, Pizza Pizza has been able to beef up its website (I still don’t see it on par with its tech-savvy competitors) while sprucing up existing stores to keep up with appearances.

With a strong national brand and fairly reasonable value proposition, I see Pizza Pizza as one of the firms that will come roaring back when the Canadian economy finally gets back into high gear.

At the time of writing, Pizza Pizza trades at just 11.6 times trailing earnings, which is a significant discount to its bigger brothers in the pizza space. Although the quality of Pizza Pizza’s product is up for debate, I think the quality of the distribution is higher than most other nearly 9% yielders out there!

Should you invest $1,000 in Pizza Pizza Royalty Corp right now?

Before you buy stock in Pizza Pizza Royalty Corp, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Pizza Pizza Royalty Corp wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »