When it comes to finding a safe dividend stock, royalty funds can be a strong option. These stocks are companies that offer stable returns and dividends, yet many rely on natural resources for income.
But not A&W Revenue Royalties Income Fund (TSX:AW.UN). This dividend stock instead focuses on the returns it achieves from royalties collected from the revenue of its franchise locations. Right now, this has proven beneficial, as Canadians continue to look for cheap ways to eat out.
So, why is A&W stock in particular a great option, and how much income can the dividend stock create?
Demand rising higher
A&W stock tends to do well in general, but during a difficult economy, the stock has been coming out on top. This happens as Canadians want to eat out but for less. And if you want in on that action, the royalty fund provides stable income, reducing overall risk in your portfolio.
The company continues to have a strong brand in Canada, with over 100 years of a loyal customer base. In that time, its fund has created reliable income for Canadians from a percentage of sales. Investors then see this come out as a monthly dividend, which continues to grow year after year. And with a large number of locations, there is reduced risk from the diverse locations where restaurants are located.
Shares of A&W stock are now down about 4% in the last year, with the latest earnings providing stable results. Royalty income rose by 8.1% compared to the same time last year. Further, royalty pool same-store sales growth increased 6.1% compared to the year before.
How much income you can create
With shares of A&W stock down for now, investors can certainly use this time to invest in the stock for more income, for less pay. In fact, shares of A&W stock trade at just $34.25 as of writing. Those shares had a 52-week high of $39. This provides a potential upside of 13.8% as of writing for investors who bought today.
What’s more, think of the company’s dividend. It currently offers an annual dividend of $1.92, which comes out on a monthly basis at $0.16 per share. So, let’s say you have $5,000 to invest. Let’s see what that would get you in passive income today versus at 52-week highs.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY | TOTAL COST |
| AW.UN — now | $34.25 | 146 | $1.92 | $280.32 | Monthly | $5,000 |
| AW.UN — 52-week highs | $39 | 128 | $1.92 | $245.76 | Monthly | $5,000 |
Now, let’s look at what would happen if your shares returned to 52-week highs, with the passive income attached.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY | TOTAL VALUE |
| AW.UN — now | $34.25 | 146 | $1.92 | $280.32 | Monthly | $5,000 |
| AW.UN — 52-week highs | $39 | 146 | $1.92 | $280.32 | Monthly | $5,694 |
As you can see, you’d receive passive income at $280.32 and have returns of $694 from your $5,000 investment! That would certainly go a long way and have even more growth on the way, as the economy continues to recover.
