A company can only pay dividends if it has the cash to do so. That means the payout has to be backed by real cash flow, not just accounting profits. On paper, a company can look profitable, but if that profit doesn’t convert into cash, it won’t be able to sustain regular dividend payments.
Some businesses find this easier than others. Companies with lumpy or cyclical earnings, or those that need to spend heavily just to maintain operations, are more vulnerable to cutting their dividends when things get tight. That risk goes up if margins shrink or sales dip.
Royalty companies don’t have this problem. They collect a slice of revenue from other businesses and have virtually no operating costs. That makes their income far more stable and predictable. One of the best examples on the TSX is a royalty fund built around one of Canada’s favourite steakhouse chains: The Keg.
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Why invest in royalties?
Imagine you open a steakhouse. It’s your dream business. But before you can pay yourself, you need to pay for staff, rent, meat, insurance, advertising, kitchen equipment, liquor licenses, and cleaning supplies. You might work 80 hours a week and still struggle to break even. That’s the reality for many restaurant operators.
Now imagine a different model. You own the name of the steakhouse via the brand and you license it out to someone else. They do all the heavy lifting. You collect a royalty based on their gross sales. They take on the risk, and you get paid simply for owning the rights. That’s what a royalty business looks like.
How to earn royalties from The Keg
The Keg Royalties Income Fund (TSX: KEG.UN) gives you a simple way to tap into that royalty stream. In March 2020, the fund acquired the trademarks and intellectual property related to The Keg Steakhouse & Bar for exclusive use over 99 years. In return, it collects a 4% royalty on gross sales across all franchised Keg restaurants in Canada and the U.S.
The royalty pool is adjusted once a year on January 1, adding any new Keg locations opened before October 2 of the prior year and subtracting any that have permanently closed. This keeps the income base up to date and ensures the fund reflects the current footprint of the brand, which has been steadily expanding.
The most recent monthly dividend was $0.0946 per unit, and that amount has remained consistent throughout 2025. If that level is maintained, investors are looking at a 6% annualized yield based on current prices. Dividends are typically declared on the 21st of each month and paid out by the end of the month, usually on the 30th or 31st.
