This 5.7% Dividend Stock Is My Top Choice for Immediate Income

This high-yield monthly payer can deliver quick income, but the real question is whether the royalty cash flow comfortably covers the cheque.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published February 23, 4:40 pm EST

| More on: PZA

Key Points

Pizza Pizza Royalty earns royalties on franchise system sales, so it’s less exposed to labour and food costs.
System sales have been inching up, but dividend coverage can get tight in weaker quarters.
The yield can be attractive for immediate income, yet it relies on steady sales and careful financing.

A high-yield dividend stock becomes a top choice for immediate income when the yield comes from steady cash flow, not stress. You want a payout the business can cover through a normal year, a model that does not need huge spending to keep running, and a buffer for slower quarters. The best ones make it easy to understand how cash gets from customers to your pocket, as immediate income only feels good when it feels dependable.

Pile of Canadian dollar bills in various denominations — Source: Getty Images

PZA

Pizza Pizza Royalty (TSX: PZA) fits this mould as a royalty company, not the restaurant operator. It collects a royalty on system sales from the Pizza Pizza and Pizza 73 restaurant networks. That structure matters because it reduces direct exposure to store-level costs like labour and ingredients. Instead, the key driver becomes system sales across the franchise network, because higher system sales generally translate into higher royalty income and more cash available for distributions.

Over the last year, the story has been about defending demand in a tougher consumer environment. The dividend stock pointed to heightened competition across quick-service restaurants and the pressure that comes when households feel squeezed. In response, it leaned into practical levers like digital ordering, faster service, and menu moves designed to protect traffic and basket size.

The network also continued to expand, which supports system sales even when same-store sales are muted. In its third quarter of 2025 update, the royalty pool included 794 restaurants, and the dividend stock reported that the restaurant network increased by 11 net locations during the quarter.

Earnings support

Now to the earnings and cash engine. In the third quarter of 2025, royalty pool system sales increased 2% to $158.8 million. Same-store sales rose 0.1%. Fully diluted basic earnings per share (EPS) came in at $0.231, and adjusted EPS came in at $0.236. These are not explosive numbers, but show the model still generates earnings and cash flow even when the environment feels competitive and cautious.

Dividend coverage is the line investors should watch closest with PZA. For that same quarter, the dividend stock declared dividends of $5.7 million, or $0.2325 per share, and it reported a payout ratio of 111% for the quarter. That sounds tight because it is tight, but it’s also a reminder that this business can be seasonal and that short periods can look stretched even if the full-year picture feels more manageable. The dividend stock also uses a working capital reserve to help smooth distributions through softer periods, and it reported that reserve at $4 million at the quarter-end.

Looking ahead, the outlook rests on system sales growth plus financing discipline. If the brands can keep nudging sales higher through menu, marketing, and digital improvements, the royalty stream can hold up. The other moving piece is interest expense. The dividend stock extended its credit facility to April 2028 and put an interest rate swap in place, and it described its interest rate as 3.51%, including its credit spread at the time.

Foolish takeaway

On valuation, PZA behaves like an income vehicle. Investors tend to anchor on the monthly dividend and the stability of the payout rather than expecting rapid capital gains. The current monthly dividend is $0.0775 per share, or $0.93 annually. Today, it trades at 17.5 times earnings with a 5.67% dividend yield. That can bring in ample income, even with just $7,000.

COMPANY	RECENT PRICE	NUMBER OF SHARES	ANNUAL DIVIDEND	ANNUAL TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
PZA	$16.41	426	$0.93	$396.18	Monthly	$6,990.66

The trade-off is that the payout can look snug in weaker quarters, so you need to be comfortable with a distribution that relies on steady system sales and some smoothing. Competition stays intense, consumer demand can wobble, and payout ratios can run high at times. If you want a monthly cheque and you can accept that coverage can feel tight in softer stretches, it can fit. If you want a bigger margin of safety, you may prefer a lower-yield option with more cushion.