A Tailor-Made TFSA stock: A 7.3% Yield With Monthly Paycheques

Are you looking for stocks that have high yields and pay monthly?

In past articles, I suggested real estate investment trusts (REITs) as possible options for those seeking such stocks. REITs are the most common type of monthly-pay stock in Canada, and they usually have pretty high yields. For this reason, I was previously content to suggest REITs to those seeking high monthly income from their investments.

But recently, the thought occurred to me that some income-seeking Canadians might not be interested in real estate investments. Canada’s population growth has slowed a lot in recent years, and that has led to a significant cooldown in top residential markets like Toronto and Vancouver. There’s still some growth on the East Coast, but that’s likely driven by buyers priced out of TO/Van seeking more affordable homes elsewhere.

There’s also non-residential real estate, the idea that I’ve been hammering on the most in my monthly income-themed articles. Industrial and warehouse REITs have a lot of potential to make money off of the data centre buildout expected to come to Canada in the months ahead.

However, there are also opportunities completely outside of the REIT space as well. In sectors like pipelines, small cap financials and elsewhere, high monthly income can be found. In this article, I’ll explore a monthly-pay dividend stock that yields roughly 7.3%.

Pizza Pizza Royalty Corp

Pizza Pizza Royalty Corp (TSX: PZA) is a Canadian royalty corporation that makes money from Pizza Pizza’s trademarks. Pizza Pizza is Canada’s biggest homegrown pizza chain. The locations operate as independent franchises, buying their intellectual property (e.g., trademarks) from Pizza Pizza RoyaltyCorpp. The corporation owns the company name, logo, recipes, and more. In exchange for selling the rights to these franchisees, it collects a few cents per dollar of revenue they earn.

How it makes money

One of the benefits of Pizza Pizza Royalty Corp’s business model is that it doesn’t require that individual locations be profitable. The company collects royalties from franchisees as long as they have revenue coming in. The risks in operations are all assumed by the franchise location;, Pizza Pizza Royalty Corp simply collects the dividends. It also passes ample amounts of dividends on to shareholders – more on that in a minute.

Performance

When it comes to performance, PZA scores rather low on growth but high on profitability. This is pretty typical of a royalty corporation that earns passive income from intellectual property. The company has virtually no operating costs, but not much in the way of growth catalysts.

In the trailing 12-month period, PZA boasted the following growth metrics:

• Revenue: -0.7%.
• EPS: -3%.
• Free cash flow: -5.4%.

Obviously, not the best growth figures. However, PZA compounded all of the metrics named above at 5%–6% over the last five years. So, the long-term picture is not bad.

On profitability, PZA is excellent, with a 100% gross margin, a 98% operating income (EBIT) margin and a 77% net margin. All of these figures are quite typical for the type of company that PZA is (it’s largely just there to collect royalties). The royalty company also had a 10% return on equity and a 7% return on capital in the TTM period.

Valuation

Above, I wrote that PZA was not growing much as a company. That might seem very concerning, but when you look at the stock’s valuation metrics, you can see that it doesn’t need a whole lot of growth in order to thrive:

• P/E ratio: 12.
• Price/sales ratio (forward): 0.61.
• Price/book ratio: 1.3.
• Price/cash flow ratio: 12.5.

All of these metrics are far below average.

Dividend potential

Finally, PZA stock has considerable dividend potential. With its 7.3% yield, it can pay you $605 per month if you invest $100,000 in it. Here’s a table showing the numbers:

Taking everything into account, PZA stock looks like an intriguing monthly income opportunity.