When inflation starts chipping away at your purchasing power, it’s time to get serious about protecting your income. Guaranteed investment certificates (GIC) and savings accounts can only get you so far, especially when the interest offered often lags behind the rising cost of living. That’s where a strong dividend stock comes in.
One of the top inflation fighters on the TSX is A&W Revenue Royalties Income Fund (TSX: AW). With a solid yield, consistent payments, and a business model tied to real-world spending, it’s the kind of dividend stock I’d be confident putting into my portfolio right now.
Source: Getty Images
About A&W
A&W Revenue Royalties isn’t your typical restaurant stock. It doesn’t run locations or manage staff. Instead, it collects royalties from franchised A&W restaurants across Canada. The royalty is currently 3% of sales from the restaurants in its royalty pool. That means it earns revenue based on top-line sales, not bottom-line profits, which is a key reason it can keep up with inflation. As food prices rise and consumers spend more per visit, A&W earns more. Even modest menu price hikes contribute to its revenue growth.
Right now, the dividend stock offers a dividend yield of about 3.6%. It pays this income out quarterly, making it an attractive pick for investors who want reliable, steady cash flow. At a recent share price of $36.93, that works out to around $1.92 per year in income. In a world where savings accounts often pay under 2%, this kind of payout is a real asset. The fund’s payout ratio is high, at around 97%, but that’s typical for an income trust. It’s structured to return nearly all its income to unit holders, and thanks to its predictable royalty stream, it can do that with confidence. Right now, a $10,000 investment could bring in $518.40 in annual dividends!
In its most recent earnings update, the fund reported revenue of $13.4 million for the first quarter of 2024. That’s a 1.5% increase from the same period in 2023. While not explosive growth, it’s stable and dependable, especially for a fund that’s designed to provide income, not big capital gains. Net income for the quarter came in at $7.4 million. The dividend stock’s total number of restaurants in the royalty pool also rose, reaching 1,037 by early 2024. That number continues to grow as A&W opens new locations, which further boosts the fund’s potential revenue.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (annual) | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| AW | $36.93 | 270 | $1.92 | $518.40 | Quarterly | $9,971.10 |
More to come
What sets AW apart is its resilience. It doesn’t rely on big expansion plans or international markets. It focuses on the Canadian consumer and has built a loyal customer base with quality food and strong brand recognition. A&W’s focus on hormone-free beef and sustainable packaging resonates with Canadians. That keeps customers coming back, even when times are tight. It also means that even during downturns, A&W’s sales don’t drop off a cliff.
Another reason this stock stands out is its tax efficiency. The quarterly income is considered eligible dividends, which are taxed at a lower rate than interest income in non-registered accounts. And in a TFSA, the income is entirely tax-free. That makes the real return even more attractive, especially for retirees or income-focused investors.
From a balance sheet perspective, the fund remains conservative. It has manageable debt, steady margins, and strong cash flow. With a return on equity near 11% and net margins over 55%, it’s not just a generous payer; it’s a profitable business too. This stability is key in uncertain times when interest rates and inflation are moving targets.
Bottom line
In today’s economic environment, few investments offer the combination of yield, stability, and inflation protection that A&W does. It won’t make headlines for tech innovation or massive stock price growth, but it doesn’t need to. It delivers reliable income, with a model that naturally adjusts to inflation. That’s exactly what many Canadians are looking for right now.
If I could only pick one dividend stock to fight back against inflation, this would be it. A&W Revenue Royalties Income Fund is a burger-backed income machine that keeps things simple and steady, and that’s exactly what makes it such a great buy today.
