Do you have idle money or pandemic savings sitting around but earning nothing? If you don’t have an immediate need for it, bring it to a marketplace where it could make more money for you. Your spare cash, whether $500 or $5,000, could grow faster if invested in dividend stocks.
Automotive Properties (TSX: APR.UN) and A&W Revenue Royalties Income Fund (TSX: AW.UN) are pure dividend plays. With COVID cases steadily declining, businesses are returning to normal. Also, both stocks are among TSX’s top performers in 2021. You can create an extra income from their generous dividends.
Strong industry fundamentals
Automotive Properties, a growth-oriented real estate investment trust (REIT), owns and operates 66 income-producing commercial properties. The tenants are primarily retail automotive dealerships. Despite the strong industry fundamentals, Canada’s automotive retail industry sales in 2020 dropped 9% versus 2019.
In the first half of 2021, sales have rebounded significantly. From a $7.6 million net loss in the same period last year, the REIT reported $44.2 million in net income. In Q2 2021, rental revenue and cash net operating income (NOI) increased by 4.1% and 8.6% versus Q2 2020.
Milton Lamb, CEO of Automotive Properties, believes the financial results reflect the resiliency of the automotive dealership industry. More importantly, the REIT’s portfolio remains fully leased, while contractual base rent collection under the leases in Q2 2021 was 100%. The REIT has also collected 100% of rent due in July and August 2021.
Lamb said, “We expect the pace of industry consolidation to accelerate supported by the strong recovery in sales.” The CEO added that Automotive Properties has a strong balance sheet position. It can capitalize and pursue strategic acquisitions through debt financing and available liquidity.
As of September 8, 2021, the real estate stock trades at $12.94 per share. The year-to-date gain is 26.4%, while the dividend yield is a juicy 6.24%. A $5,000 investment will produce $312 in passive income. In your Tax-Free Savings Account (TFSA), the earnings are tax-free.
Profitability growth
A&W Revenue Royalties Income Fund gets 3% (royalty income) of the gross sales of royalty pool restaurants. The $542.3 million top-line funds indirectly own the A&W trademarks used in the quick-service restaurant business. Like others in the industry, the pandemic adversely affected A&W restaurant operations.
Nearly 24% (230 out of 971) of A&W restaurants temporarily closed during COVID-19’s peak impact. Fortunately, it didn’t take long for the business to gain momentum. Same-store sales trended upward since Q2 2020. As of July 27, 2021, only eight restaurants haven’t reopened.
In Q2 2021 and the first half of the year, A&W’s same-store sales grew 33.5% and 12.2% versus the same period in 2020. As a result, royalty income climbed 38% and 18%, respectively. To date, there are 994 restaurants in the royalty pool. The ongoing concern is to restore the financial health of restaurants most affected by the pandemic.
Management also expects to grow restaurant profitability via drive-thru restaurants. At $37.42 per share, current A&W investors enjoy an 11.95% year-to-date gain on top of the 4.81% dividend yield.
Bright business outlooks
Automotive Properties and A&W Revenue Royalties have bright business outlooks in the post-pandemic. As such, both are excellent investment options for Canadians looking for the best use of their spare cash. Your money would compound faster and deliver extra income at the same time.
