This 6.5% TSX Dividend Is the Stock to Buy in June

This top TSX dividend stock has proven just how reliable it can be, making it one of the best investments Canadians can make in the month of June.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

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

So far, after the rapid crash in TSX stocks back in late February and early March, the market has made a rapid recovery. At the moment, it looks as though the stock market is on the way to make a V-shaped recovery.

This, however, is far from how the economy is likely to perform. And while the stock market is forward looking and isn’t always in line with the economy, a prolonged recession will make it next to impossible for the market to continue to rally.

Currently, there is optimism that the coronavirus pandemic may not last as long as initially was expected. However, I would point out that the pandemic ending doesn’t ensure that economies will be able to recover at the drop of a hat.

For this reason, I would expect another market crash, as optimism about the rapid recovery of the economy begins to erode.

If this is the case, and the market retreats into more of a U-shaped recovery, TSX dividend stocks could become some of the best investments to own.

A top TSX dividend stock

As we’ve seen over the last few months, one of the most resilient dividend stocks is Pizza Pizza Royalty (TSX:PZA).

Restaurant stocks have been one of the worst-hit industries due to COVID-19. However, of all the TSX restaurant stocks, Pizza Pizza, unsurprisingly, has been the most defensive.

In the first quarter of 2020, same-store sales growth (SSSG) was down 6%. This includes SSSG growth of 2.1% in January before seeing -1.2% SSSG in February and -17.6% SSSG in March. April was even worse with Pizza Pizza seeing SSSG of -26%.

These numbers aren’t great; however, when you compare them to the rest of the industry, it’s clear how robust Pizza Pizza has been.

One of the reasons it hasn’t seen as big of an impact as some of its peers is because only around 10% of its locations are closed. Early on during stay-at-home orders, a lot of walk-in sales initially declined. However, these sales are slowly starting to come back. In general, walk-ins account for roughly 35% of sales.

One thing to being mindful of going forward is its Pizza 73 segment in Western Canada. With a slower recovery likely in Alberta, Pizza 73 could be the segment that weighs on Pizza Pizza’s recovery. However, in total, it accounted for just 17% of system sales in 2019.

Pizza Pizza is clearly one of the top TSX dividend stocks to consider. But what’s even more impressive is that while almost every single one of its peers suspended the dividend, Pizza Pizza only had to trim its dividend.

Pizza Pizza’s resilient dividend makes it a top TSX stock to buy

After trimming the dividend, Pizza Pizza is in much better shape and is now one of the most reliable TSX dividend stocks to buy. Pizza Pizza’s new dividend rate is exceptionally conservative. This should help the company to rebuild its cash position.

Its cash position has been slowly decreasing the last few years, as Pizza Pizza continued to have a payout ratio slightly exceeding 100%.

Going forward, barring any further drop-offs in sales, this should all be solved. And when the economy has fully recovered, and Pizza Pizza can look to increase its dividend again, its cash reserve should be significantly higher.

As of Monday’s close, the attractive TSX dividend stock was offering a 6.47% dividend yield. A roughly 6.5% dividend that’s almost sure to be safe is highly ideal in this economic environment.

Furthermore, when Pizza Pizza is ready to increase the dividend, as the economy gets back to normal, the new rate could yield returns much higher.

Bottom line

While the market looks as though it will have a V-shaped recovery, the economics paint a much different picture.

This suggests another market crash could be on the horizon. If that were to be the case, and the stock market regressed to more of a U-shaped recovery, TSX dividend stocks would be some of the best-performing investments.

This would provide an even bigger boost to Pizza Pizza shares, as investors sought its high-quality dividend.

Regardless of how the stock market performs, though, Pizza Pizza is still one of the best long-term investments you can make today.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool owns shares of PIZZA PIZZA ROYALTY CORP.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »