A Yield to Caution

Article Excerpt

A&W REVENUE ROYALTIES INCOME FUND $35.65 (Toronto symbol AW.UN; Units outstanding: 12.1 million; Market cap: $431.4 million; Dividend yield: 4.5%; www. awincomefund.ca) holds A&W trademarks used by A&W restaurants in Canada. It licenses those trademarks to A&W Food Services of Canada Inc. in exchange for a 3% royalty on the sales of 838 A&W locations; those restaurants serve hamburgers and fries. Revenue from A&W’s royalty pool continues to rise along with same-store sales. The gains are due to the marketing of A&W’s ingredients, including beef without hormones and chicken without antibiotics. The fund has paid distributions to its unitholders for the past 10 years—even through the 2008 financial crisis. With the August 2016 payment, it raised that monthly payout by 2.3%; investors now receive $1.596 a share for a high annual yield of 4.5%. Restaurant royalty trusts, however, come with drawbacks: rather than investing directly in a business, you are buying a business’s stream of income based on its revenue. Those sales are…

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