Imagine you could invest in a nationwide pizza chain with two choices.
Option one: buy shares in the operating company and get whatever profit is left after paying staff, rent, utilities, ingredients, delivery drivers, marketing, equipment, and franchise support.
Option two: skip all that and simply collect a percentage of the top-line sales every time someone buys a slice.
I don’t know about you, but I’d take door number two!
That’s the power of a royalty model, and you can access it through Pizza Pizza Royalty (TSX:PZA), which currently pays a 6.4 % yield with monthly dividends.
What is Pizza Pizza?
There are two sides to this story. First is Pizza Pizza, the private restaurant business Canadians know. It operates and franchises hundreds of locations across the country.
It deals with everything you’d expect from a large quick-service chain: staffing challenges, food inflation, rising overhead, delivery logistics, marketing budgets, and franchise support costs. It’s a real operating company with real expenses.
Then there is Pizza Pizza Royalty, an affiliated public entity. This trust doesn’t run restaurants. It owns the royalty pool, which is a contractual right to collect a percentage of system-wide sales from Pizza Pizza locations.
The trust doesn’t pay for staff, rent, ingredients, or renovations; it simply receives a cut of gross sales and passes most of it to unitholders. That structure leads to high margins, a very simple balance sheet, and less operational risk than owning the restaurant business itself.
Your upside comes from the operating company opening new restaurants, boosting same-store sales, and expanding its brand. The trust benefits from that growth without needing to reinvest in operations, which makes it a more stable and predictable way to participate in the chain’s success.
How you get paid
Every time Pizza Pizza rings in a sale, a slice of that revenue flows directly to the royalty trust, which then distributes most of that cash to investors. The current payout is $0.0775 per share each month, or $0.93 per year, paid on the 15th of every month.
Because the trust has no employees or capital expenditures, nearly all of its net income is available for distribution. Management reports a payout ratio of roughly 97%, with a small reserve held back to smooth out seasonal fluctuations and cover administrative costs.
In simple terms: almost all of the money collected from royalties ends up in investors’ pockets, which you can either reinvest for more compounding or withdraw to spend as you see fit.
