Government-mandated lockdowns and social-distancing measures hit the restaurant industry hard in 2020. While the pandemic may be over, the sector will still face daunting challenges in 2023, like rising food prices and lower consumer spending.
Meanwhile, the headwinds have minimal impact on Pizza Pizza Royalty Corp. (TSX: PZA) and A&W Revenue Royalties Income Fund (TSX: AW.UN). The former continues to show strong sales growth, while the latter keeps adding and opening new A&W restaurants.
Both royalty companies are popular with income investors. Besides the generous dividends, they are among the select Canadian stocks that pay monthly dividends. Pizza Pizza yields a lucrative 6.03%, and A&W’s dividend offer is 5.31%.
Let’s assume you’d use your $6,500 Tax-Free Savings Account (TFSA) annual limit in 2023 to invest in either stock. The table below shows the number of shares you can buy and the potential tax-free income you can earn every month from each.
| Company | Price | No. of Shares | Dividend per Share | Total Payout | Frequency |
| PZA | $13.97 | 465 | $0.842 | $391.71 | Monthly |
| AW.UN | $36.15 | 179 | $1.919 | $343.60 | Monthly |
Smooth out shareholders’ income
Pizza Pizza, a $449.52 million royalty corporation, owns and franchises quick-service restaurants under the Pizza Pizza and Pizza 73 brands. Management has yet to report the full-year 2022 results, although sales growth was strong after three quarters.
In the nine months that ended September 30, 2022, royalty income increased 15.5% year over year to $26.6 million. Its chief executive officer (CEO) Paul Goddard is confident the on-trend product introductions, creative marketing campaigns, and strategic partnerships with many non-traditional restaurants will continue to support sales growth.
Because of the impressive financials and successive quarterly same-store sales growth, the board approved three dividend hikes last year. After three quarters, the total percentage increase in monthly cash dividends reached 16.7%. On a year-to-date basis, Pizza Pizza paid $14.5 million in shareholder dividends compared to $12.4 million a year ago.
According to management, the dividend policy is to make equal dividend payments every month to smooth out income to shareholders. Pizza Pizza aims to distribute all available cash (after reasonable reserves) to maximize shareholder returns over time.
A top-line fund
A&W banks on its established brands and powerful lineup of food & beverages to maintain its industry-leading growth. The $527.27 million fund owns the A&W trademarks used in the A&W quick-service restaurant business in Canada. The top-line fund derives income or royalties solely from the sales of A&W restaurants.
Susan Senecal, president and CEO of A&W Food Services, said, “Despite a post COVID-19 slowdown in the permitting process and general construction industry, A&W Food Services continues to successfully open new restaurants across Canada.” She added that Ontario and Quebec continue to be the strategic growth markets.
In the nine months that ended September 11, 2022, royalty income climbed nearly 12% year over year to $35.96 million. Management said the fund grows from same-store sales growth and the addition of new A&W restaurants each year. As of January 5, 2023, the total number of A&W restaurants in the royalty pool is 1,037, or 77.3% more, since 2002.
Business resiliency
Pizza Pizza and A&W are excellent backups to your core stock holdings. Because of business resiliency, the stocks can keep investors whole on their monthly dividend income.
