A Yield to Caution

Article Excerpt

PIZZA PIZZA ROYALTY INCOME CORP. $13.98 (Toronto symbol PZA; Shares o/s: 24.6 million; Market cap: $436.4 million; Dividend yield: 6.1%; www.pizzapizza.ca) holds certain trademarks and trade names used by Pizza Pizza restaurants in Canada. Those proprietary names are licensed to Pizza Pizza for 99 years. In return, Pizza Pizza pays the royalty fund 6% of the revenues from its Pizza Pizza restaurants (9% from Pizza 73 restaurants). There are 651 Pizza Pizza and 100 Pizza 73 restaurants across the country. Revenue from Pizza Pizza’s royalty pool continues to rise as new locations are added and new food items lift same-store sales. The fund currently pays dividends of $0.0713 a month for a high yield of 6.1%. It last raised its dividend by 2.3% in June 2016. Restaurant royalty trusts, however, come with drawbacks: rather than investing directly in a business, the trust, and so you as an investor, buy a business’s stream of income based on its revenue. Those sales are generated outside of the royalty trust’s control…

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