Invest $7,000 in This Dividend Stock for $359 in Passive Income

While many tech stocks are flying high lately, even amid the ongoing macroeconomic uncertainties, we can’t deny the possibility of a near-term market pullback. To prepare for that possibility, it makes sense to diversify into dependable dividend stocks that can continue paying regardless of short-term market swings.

With just $7,000 invested, you could be earning $359 a year — not from a risky pick, but from a company most Canadians recognize instantly. This investment could do all the heavy lifting for you, while you enjoy the returns without lifting a finger. In this article, I’ll talk about A&W Food Services of Canada (TSX: AW), a top Canadian dividend stock that could help you earn reliable passive income for years.

This reliable dividend stock could boost your income

If you’re not familiar with it, A&W is best known for its frosty root beer and iconic burgers. However, behind that familiar brand is a business that consistently generates stable cash flow and rewards its shareholders generously.

The company is the second-largest quick-service hamburger chain in Canada, with over 1,080 restaurants from coast to coast. It operates under a franchisor model, meaning it collects steady royalty-like fees from franchisees, rather than taking on the cost of running all the stores itself. This business model helps A&W keep margins healthy and earnings more predictable — a big plus for dividend investors.

After climbing by nearly 21% over the last eight months, A&W stock currently trades at $37.34 per share, giving it a market cap of about $896 million. It pays a quarterly dividend, which translates to an annualized yield of 5.1%. If you invest $7,000 today, you could collect roughly $359 every year from its reliable dividends — and that doesn’t even include its share price growth potential over time.

Solid numbers despite economic uncertainties

A big reason for the recent steady climb in A&W stock is investor confidence in its dependable cash flow and dividend. Plus, with interest rates expected to ease in the coming months, high-yield stocks like A&W become even more attractive to income-focused investors.

In the third quarter, the company’s revenue came in at $71.2 million, which was slightly lower than a year ago, as it opened fewer new restaurants during the period. But this revenue figure doesn’t tell the whole story.

Despite the drop in revenue, A&W’s profit before taxes surged by 163% YoY (year-over-year) in the latest quarter to $23.6 million. This eye-popping growth was driven by its lower marketing-related costs and the elimination of royalty expenses following a major business restructuring.

During the quarter, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 5% YoY to $25.8 million. Its profit margin also expanded sharply with the help of better cost efficiency and stronger performance across its franchised restaurants.

A&W’s long-term strategy makes it a top dividend pick

Interestingly, A&W’s long-term growth plan focuses on a simple but effective formula of expanding its restaurant count, boosting average sales per location, and improving franchisee profitability. And it’s making solid progress on all fronts.

The company is currently partnered with Suncor to open new locations inside Petro-Canada gas stations, with over 90 new restaurants committed between 2024 and 2027. At the same time, it continues to refresh its menu with value-driven options like its under-$4 value deals, while also investing to bring in more traffic and boost average ticket sizes.

With a growing footprint, scalable franchise model, and strong brand loyalty, A&W has the ability to keep its dividend intact – and growing – in the years to come. That’s why this top Canadian dividend stock could be a smart addition to your portfolio.