A Yield to Caution

Article Excerpt

PIZZA PIZZA ROYALTY INCOME CORP. $9.77 (Toronto symbol PZA; Shares o/s: 24.6 million; Market cap: $240.3 million; Dividend yield: 8.8%; www.pizzapizza.ca) holds certain trademarks and trade names used by Pizza Pizza restaurants in Canada. Those exclusive names are licensed to Pizza Pizza for 99 years. In return, it pays the royalty fund 6% of the revenues from its pizza restaurants (9% from Pizza 73 restaurants). There are 652 Pizza Pizza and 106 Pizza 73 outlets across the country. Despite the opening of new locations and the growing popularity of its high-profit-margin “cauliflower crust” option, Pizza Pizza’s declining same-store sales continue to hold back revenue growth for the royalty fund. It currently pays monthly dividends of $0.0713 a share, for a high annualized yield of 8.8%. Pizza Pizza Royalty Income Corp. last raised its dividend by 2.3% in June 2016. Restaurant royalty trusts, in general, come with drawbacks: rather than investing directly in a business, the trust, and so you as an investor, buy a business’s stream…

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