Yield Alert: Lock In This 9.7% Dividend by January 31

Boston Pizza Royalties Income Fund (TSX:BPF.UN) pays one of the best dividends out there. But act soon, or you might miss out on this golden opportunity.

| More on:
Increasing yield

Image source: Getty Images

As much as I love a good buy-and-forget portfolio filled with Canada’s best stocks, there’s one big downfall with the strategy.

You’ll miss out on fantastic buying opportunities for good companies if you take a completely hands-off approach to the market.

I don’t believe in a rigid dollar-cost averaging strategy. The time to buy a stock is when nobody else wants it and it’s flirting with a new 52-week low. This one decision can add 1-2% annually to your total investment returns, which is a pretty big deal when achieved consistently for a few decades.

Let’s take a closer at one such stock — a Canadian institution currently trading at a bargain-basement price.

A top restaurant chain

Boston Pizza Royalties Income Fund (TSX:BPF.UN) owns the trademarks of Boston Pizza, Canada’s top fast casual restaurant chain. Boston Pizza boasts 395 locations, more than $1.1 billion in system-wide sales, and some of the best pizza you’ll ever eat.

Here’s the way the investment works. As part of the franchisee agreement, Boston Pizza restaurant operators pay 5% on all sales back to the parent company. In exchange for licensing the trademarks to the parent, the Boston Pizza Royalties Income Fund gets first dibs at a percentage of that income.

It works out to be an extremely steady income stream. And since the income fund doesn’t have much for operating expenses, it can pay out almost every dollar it takes in back to investors in the form of generous distributions.

The current yield is an jaw-dropping 9.7%.

One reason why the dividend is so high is, Boston Pizza has been going through some challenging times operationally. Same-store sales, a key metric in the restaurant business, have been particularly weak in 2019, as the chain’s Alberta-based locations suffer from a poor local economy. Increased competition in the fast casual restaurant space hasn’t helped, either.

Through the first nine months of 2019 — expect full-year results out sometime in February — same-store sales fell by 2.3%. Total system-wide sales, which includes sales from new restaurants that haven’t hit the one year milestone yet, were also down.

2020 results may be similar. The company reported it added five new restaurants to the mix in 2019, but it also saw six more close. Competition will still be strong. And although crude oil continues to rally, deep cuts proposed by the Alberta provincial government may cause the tough economy in that area to persist.

The safety of the dividend

Ultimately, the dividend is the reason people own a stock like Boston Pizza Royalties Income Fund. But can this stock maintain its generous payout?

At first glance, you might not think so. Over its last four quarters, it has paid out just over 103% of earnings back to shareholders. That kind of payout ratio simply can’t be maintained over the long term.

The last thing management wants to do is cut the dividend, so there is a reserve fund in place to deal with short-term payout ratio issues. That balance today is $2.2 million, meaning the company can continue to pay the current dividend for two or three more years before depleting the cash.

In other words, management has time for things to recover.

And investors should remember that Boston Pizza has increased its dividend 18 times since its 2002 IPO.

Ultimately, a 9.7% dividend is never going to be the safest payout going. But I’m confident the company can find a way to get through these tough times. And at just 11.9 times trailing earnings, Boston Pizza isn’t just a yield play. It’s a value play as well. This means investors could also see some nice upside potential with their succulent dividends.

Just don’t delay. You’ll have to lock in a position by the end of January to be eligible for the next dividend.

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 Boston Pizza Royalties Income Fund

More on Dividend Stocks

Canadian Dollars
Dividend Stocks

1 Dividend Stock That Could Create $683.87 in Tax-Free Passive Income in 10 Years

You can earn massive passive income tax free from your TFSA. Here's how with your first dividend stock or GIC!

Read more »

Dividend Stocks

This 4.26% Dividend Stock Is My Top Pick for Immediate Income

Finding a great dividend stock is one thing, but growth in the near future is all but certain for this…

Read more »

edit Safe pig, protect money
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Are you looking for dividend stocks that can perform for the long term? These three stocks could earn safe and…

Read more »

sale discount best price
Dividend Stocks

3 Bargain Stocks You Can Buy Today and Hold Forever

Are you looking for some of the best bargain stocks you can buy today? Here’s a trio of options that…

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

Have Room in Your TFSA? Start Earning Tax-Free Dividends With Just $15,000

Use the tax-sheltered status of the TFSA to hold quality dividend stocks such as Enbridge and create a stable income…

Read more »

stock analysis
Dividend Stocks

Better Buy for TFSA Passive Income: Telus Stock or TD Bank?

TD and Telus look cheap today. Is one stock now oversold?

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Want Extra Monthly Cash? 1 Dividend Stock to Buy Now and Hold Forever

Simply buying and holding this top monthly dividend stock for the long term can potentially make you super rich.

Read more »

Financial technology concept.
Dividend Stocks

2 Dirt-Cheap Stocks to Build the Core of Your TFSA

Sun Life Financial (TSX:SLF) and another dirt-cheap TSX stock to buy this September as the TSX Index fades a bit.

Read more »