Investment trends will be different in 2022 compared with the last two years. Tech stocks ruled in 2020, while the energy sector is the runaway winner in 2021. A bounce back by consumer stocks could be next after their beating by the global pandemic.
Some market analysts are optimistic about the positive change for the foodservice industry next year, particularly restaurant stocks. It’s going to be like a grand reopening of Restaurant Brands International (TSX:QSR)(NYSE:QSR), A&W Revenue Royalties Income Fund (TSX:AW.UN), and Pizza Pizza Royalty (TSX:PZA). Apart from the upside potential, would-be investors can feast on the lucrative dividend payments.
Return to pre-pandemic growth
Warren Buffett soured on RBI, a long-time holding, in 2020 for fear the business would not survive the shutdowns. However, the parent company of quick-service restaurant brands Burger King, Tim Hortons, and Popeyes proved the GOAT of investing wrong. Thanks to the stay-at-home mandates and online ordering, Popeyes’s chicken sandwich became a sensation and saved the year.
Fast forward to September 30, 2021, and RBI is in good financial shape. After three quarters in 2021, cash provided by operating activities jumped 79.4% to US$1.25 billion versus the same period in 2020. José Cil, RBI’s CEO, said, “Our highly efficient business model once again generated strong free cash flow.”
Cil added that RBI is on track to return pre-pandemic unit growth levels this year. Also, the $22.81 billion company expects growth to accelerate further in 2022. The current share price is $72.39, while the dividend yield is 3.62%.
Back in business
A&W Revenue Royalties Income Fund owns the trademarks used in the A&W quick service restaurant business in Canada. The restaurant stock (+21.72%) has done pretty well on the TSX. Likewise, the restaurants in the royalty pool are reporting vastly improved financial results. At $39.95% per share, investors can partake of the 4.66% dividend.
In the period from January 1, 2021, to September 12, 2021, same-store sales growth was 14% compared to the same period in 2020. A&W restaurants in the royalty pool grew from 971 to 994. Notably, royalty income and net income grew 18.7% and 38.1%, respectively.
Susan Senecal, A&W Food Services president and CEO, said about the Q3 2021 results, “Although we continue to face challenges related to COVID-19, we are pleased to report strong sales growth for the quarter.” She is delighted that almost all A&W restaurants have reopened.
Positive momentum in Q4 and beyond
The restaurants in the Pizza Pizza royalty pool have yet to fully recover in 2021. However, the modest increases in royalty pool sales (3.5%) and same-store sales (2.8%) in Q3 2021 versus Q3 2020 are encouraging signs. Paul Goddard, CEO of Pizza Pizza, said, “We’re pleased with the strong sales growth in our largest markets.” He credited the strong marketing campaigns and effective product innovation for the sales growth.
Goddard added that the fourth quarter has been A&W’s strongest for years. He expects the positive momentum to continue in 2022. This royalty stock is a steal, given the $11.96 share price (+36.98% year to date) and the fantastic 6.02% dividend.
On centre stage in 2022
Ready your appetites for the grand reopenings of the top Canadian restaurant brands. They will be on centre stage in the recovery period and enhancing shareholder returns in 2022.