A Yield to Caution

Article Excerpt

PIZZA PIZZA ROYALTY CORP. $12.71 (Toronto symbol PZA; Shares outstanding: 24.6 million; Market cap: $312.7 million; Dividend yield: 6.4%; 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 730 Pizza Pizza and Pizza 73 outlets across the country. Pizza Pizza cut its monthly dividend in February 2020 by 29.9% in the face of the onset of the pandemic. It has raised it a total of 35.0% since then—most recently a 3.8% rise in July 2022 to $0.0675 a share. The shares now yield a high 6.4%. But most important for investors is that restaurant royalty trusts, in general, come with drawbacks. For one thing, this is a type of derivative. Rather than putting your money in a business, you are buying a stream of income, based on…